Standing Committee A

[Mr. Derek Conway in the Chair]

Local Government Bill

Clause 16 - ''Capital expenditure''

Amendment proposed [this day]: No. 43, in 
clause 16, page 6, line 30, leave out 'proper practices' and insert 'Generally Accepted Accounting Practices.'.—[Mr. Clifton-Brown.]
 Question again proposed, That the amendment be made.

Derek Conway: I remind the Committee that with this we are discussing the following amendments:
 No. 78, in 
clause 16, page 6, line 31, leave out subsection (2) and add— 
 '(2) The Secretary of State may request the Chartered Institute of Public Finance and Accountancy or the Comptroller and Auditor General at any time to provide guidelines and advice on what expenditure of local authorities shall be treated for the purposes of this Chapter as being, or not being, capital expenditure, and shall lay any such guidelines or advice so received before Parliament. 
 (3) The Secretary of State may direct a local authority to follow any guidelines and advice laid before Parliament under subsection (1)'.
 No. 44, in 
clause 16, page 6, line 35, leave out from beginning to end of line 37.
 When we adjourned for lunch the hon. Member for Southport (Dr. Pugh) had the Floor but the Under-Secretary was intervening. Had the hon. Gentleman completed his intervention?

Christopher Leslie: It would not be right to make a long intervention so I shall allow the hon. Gentleman continue. I will follow up my point when he sits down.

John Pugh: The Under-Secretary made a case for discretion with regard to capital expenditure and we accept that. However, we are trying to find out whether that discretion is fettered or controlled. I think he said that he will consult before varying definitions of what capital expenditure may or may not be, and that is an option for him. We are pressing him to bind himself to consultation so that when he comes up with a definition of capital expenditure it will command wholesale respect. For example, let us take the case of a local authority that decides to buy shares in its local airport. It defines that as capital expenditure and decides to use headroom under capital expenditure limits in order to accommodate it. Is it an option for the Under-Secretary to say, arbitrarily, that it will not count as capital expenditure but as something else? If it is not an option for him and he cannot act in such an arbitrary way, what in the Bill prevents him doing so? I want to press the Under-Secretary on that point.

Christopher Leslie: We finished the previous sitting on the concept of whimsicality and whether a Minister was fettered in using his discretion over the issuing of a direction on the definition of capital expenditure. In my earlier intervention I tried to explain that there was a limit to what Ministers can do. Ministers cannot exercise their powers unreasonably under the normal understanding of that concept. It goes back to something called the Wednesbury principle in the 1930s, with which I am sure he is familiar. Ministers must act reasonably or they are subject to a challenge. There will be full consultation in the normal way. Some of these directions are not impositions on the authority concerned; often, they can be requested by the authority concerned in the case of capitalisation. I am not entirely clear about the specific example that the hon. Gentleman posits about what would happen in the case of purchasing shares in an airport, as I do not have the information on such circumstances to hand. However, my understanding is that directions to change would be in exceptional circumstances and I hope that the hon. Gentleman will accept that assurance as sufficient in this case.

Geoffrey Clifton-Brown: I am pleased to serve under your chairmanship, Mr. Conway. As I explained to your co-Chairman this morning, I have arrived fresh from the Planning and Compulsory Purchase Bill Committee, which is why I have not attended this Committee before.
 Before I speak to the amendment I want to raise a matter of housekeeping, Mr. Conway. I arrived this morning to find the Committee embroiled in political controversy over the matter of pooling capital receipts. I was not able to find out what had been said on the matter in a previous Committee because the Hansard report was not ready. I do not attach any blame to the individual Hansard reporters, as it is not a matter for them. However, if the Government are scheduling so many Committees at one time that the Hansard report of the previous sitting is not available in time for the next sitting, how can the Committees do their job properly and scrutinise what the Government say? We needed to check what the Minister said to see whether we needed to query it any further. We have a real difficulty here Mr. Conway. It may not be within your control, but I would be grateful if you could pass on our feelings about this to the relevant House authorities.

Derek Conway: I am grateful to the hon. Member for that observation. The Hansard reporters, who serve us extraordinarily diligently and with great accuracy, are manning a number of Committees at the moment. This time of year is always difficult. I will ensure that the hon. Gentleman's observations are drawn to the attention of the Editor of the Official Report to see whether something can be done. Perhaps a draft could be made available, if not the final printed version. The point that the hon. Gentleman makes is clearly a reasonable one for the Official Report to consider.

Geoffrey Clifton-Brown: If we are in the middle of debating a clause, perhaps that section of Hansard relating to that particular clause could be made available.

Derek Conway: That is not an unreasonable request when the Committee is discussing the same item of business over two sittings that are not on the same day. I shall ensure that that message is conveyed.

Geoffrey Clifton-Brown: Thank you for your helpful guidance, Mr. Conway.
 The Minister has explained that the powers in the clause would be used only sparingly and in exceptional circumstances. While I do not entirely agree with the rather arbitrary nature of these directions, I would rather see more laid out in regulation. We are moving far too far from proper scrutiny in this House, not only of primary legislation, but secondary legislation by regulation. We seem to be getting to a tertiary type of direction that is under nobody's scrutiny except that of the Secretary of State. We will get into some pretty arbitrary territory, which is desirable neither from the individual local authority that has to interpret those directions, nor from the Secretary of State's point of view. He may consider something perfectly reasonable when in practice, because no consultation has taken place, it might turn out to be nonsensical. With those cautionary remarks, I think that we have explored the amendment for the time being. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 16 ordered to stand part of the Bill.

Clause 17 - External funds

Question proposed, That the clause stand part of the Bill.

Robert Syms: The explanatory notes make it clear that the clause deals with local authority pension funds, and there is a separate regime for dealing with that. Subsection (1)(b) says that a local authority can borrow from a pension fund on a temporary basis. Could the Minister say a little more about that because I did not appreciate that local authorities could borrow from their pension funds? Could he define ''temporary''? Is it days, weeks or months? For what purpose would a local authority borrow from its pension fund?

Desmond Swayne: Before my hon. Friend concludes, may I, through him, ask the Minister to tell us how much this is practised at the moment? What order of funds is borrowed in this way?

Robert Syms: This is a small point. The Minister may wish to write to members of the Committee to set out the situation. I would be generally interested to see how often it occurs. Is it purely a housekeeping measure or is there a general application? The subsection reads:
''the temporary use by a local authority of money forming part of an external fund, if not for a purpose of the fund, shall be treated as borrowing by the authority''.
 How often is money borrowed from pension funds and how is ''temporary'' defined?

John Pugh: I should like some clarification about the phrase ''external fund''. I am familiar with arrangements where local authorities act as trustees for organisations working in the regeneration and
 renewal area. In effect they are not simply trustees but co-funders of a scheme. When I initially read the clause I thought that the phrase ''external fund'' embraced such factors. I now understand that it does not and that it is meant exclusively to embrace pension funds and the like. But the definition of external funds seems inexact, or in fact unformulated, in the legislation. Will the Minister consider the necessity of tightening it to exclude other forms of external finance to local authorities?

Geoffrey Clifton-Brown: Members of the Committee who have spoken on the matter have raised some reasonable points. As I understand it, the purpose of the clause is to keep local authorities' superannuation funds' capital controls ''as now'', as it says in the explanatory notes. Perhaps the Minister will confirm that there is nothing new in the safeguards, unless in fact there is. My hon. Friend the Member for Poole (Mr. Syms) mentioned the problem of the superannuation fund borrowing from the local authority. I wonder whether he read, at clause 17(1)(c):
''entry into a credit arrangement by a local authority''.
 It would be useful for the Committee to know whether these are normal arrangements and whether that has ever occurred. 
 Finally, will the Minister clarify what is meant in subsection (2)(b) by 
''a trust fund of which the authority is a trustee''?
 Is that a normal pension fund arrangement or does the provision envisage other arrangements that may be being used to get around current financial controls?

Andrew Turner: I wonder whether that provision also applies to funds such as charities of which the local authority may be a trustee. My local authority was the trustee for a property called Northwood house in Cowes. It reached the point of selling it before it discovered that it was a trustee and therefore not allowed to do so. Fortunately that situation was reversed, but this seems an opportunity to plunder all sorts of funds.

Geoffrey Clifton-Brown: My hon. Friend has opened up a Pandora's box. We are getting into the fiduciary role of a trustee. I wonder why or where it would occur that a local authority would be a trustee of anything, let alone that the superannuation fund would enter into a trust deed with another party. Perhaps the Minister could clarify that point and then we might return to it.

Christopher Leslie: The questions came thick and fast. Opposition Members should read the clause in the context of chapter 1, which is about the prudential regime and the changes in the capital regime we are putting in place. Clause 17 deals with external funds—which I will come to in a moment—but simply preserves the existing arrangements under the present system.
 The main example is pension funds, which will be treated outside the normal capital controls but governed by their own regulations and arrangements. Those funds are ring-fenced and subject to separate legislation. In response to the hon. Member for Cotswold (Mr. Clifton-Brown), the provision would also cover other funds such as charitable funds for 
 educational or recreational purposes or property held in trust for people in the care of authorities. 
 The clause ensures that transactions such as expenditure, borrowing and investment undertaken for the purposes of such funds are outside the scope of the provisions in chapter 1. The hon. Member for Poole asked me to clarify the meaning of ''temporary'' in subsection (1)(b). We covered a lot of that ground under clause 5 and the meaning is largely the same; in other words, the money would have to be repaid within the financial year. 
 The hon. Member for New Forest, West (Mr. Swayne) asked how much the temporary facility is used across the country. I cannot have that information to hand, not least because so many funds and authorities are concerned. I suspect that the answer could be discovered only at disproportionate cost, but I will ask officials to look further into the matter. If an answer is readily to hand I shall supply it to the hon. Gentleman in due course.

Geoffrey Clifton-Brown: The Minister has given a reasonable explanation of what the clause is about, but could he give the Committee some examples of where problems have arisen that have generated the need for the clause? Could he also tell us what the clause gives the Government extra powers to do that is not already enshrined in other regulations?

Christopher Leslie: I can. The provision concerns the prudential borrowing regime that we are seeking to establish. In ensuring that a local authority is able to make its own assessment of how affordable its borrowing commitments are, we are saying that external funds and pension funds should not be classed as part of that, even though in their normal course of activities they would involve capital transactions. The clause concerns the normal affordability of capital and borrowing for a local authority. That is why the existing arrangements will continue in clause 17. The existing system works well and we want that to continue, so it is necessary for us to make that clear in the Bill.
 Question put and agreed to. 
 Clause 17 ordered to stand part of the Bill.

Clause 18 - Local authority companies etc

Question proposed, That the clause stand part of the Bill.

Geoffrey Clifton-Brown: Clause 18 concerns local authority companies. As on the previous clause, I seek clarification from the Minister. We are concerned to ensure that there are no possible loopholes that would give rise to misuse of public money. For example, no draft regulations under clause 18(4) have been published. Could the Minister tell us what those draft regulations might include?
 Will the Minister also tell the Committee what borrowing safeguards there will be for local authority companies and whether local authorities can give shareholder guarantees to the companies? With what 
 auditing regime will the companies have to comply, and will they be subject to best value and comprehensive performance assessments? How will local authorities be protected from fraud in relation to those separate companies, and what other safeguards provided in the Bill will apply?

John Pugh: May I make a simple point about the clause? I tried reading subsection (1) several times before I managed to attribute any meaning to it. At first I thought it was tautologous, but eventually I worked out what it meant. It appears to say that the actions of a body covered under subsection (2) are to be treated for the purposes of the chapter as the acts of local authorities. However, it says that in a very cumbersome way, and would not pass a plain English test. Would the Minister consider re-drafting it in a more felicitous fashion?

Christopher Leslie: I believe that subsection (1) is reasonably drafted. It simply says that the regulations would allow local authority company activities to be regarded as if they had been undertaken by the local authority itself, with regard to capital activities and borrowing, and in so far as they relate to the affordability test. The clause concerns local authority companies and defines—

John Pugh: That is indeed what it says, but I think it would be better, for the sake of clarity, to say it without using a sentence that includes the word ''regulations'' with three different functions.

Christopher Leslie: I would prefer statute to be drafted in a certain way, but it is sometimes drafted in a repetitious manner so that it does not exclude any possibilities and avoids loopholes. That brings me to the point made by the hon. Member for Cotswold. The broad purpose of the clause is to preserve and continue the current system. The current system prevents local authorities evading capital controls by operating via companies, and that principle will be preserved in the new system,not only for the prudential limit, but for the national economic reasons limit, which we discussed under clauses 3 and 4.
 The hon. Gentleman asked about borrowing safeguards, the auditing regime and protection from fraud. The company laws, including the Companies Act provisions, will apply to local authority companies just as they do to any other limited company. That law contains perfectly adequate protections relating to the auditing of accounts and other matters raised by the hon. Gentleman. Local authority companies do not need to be treated in the different way suggested. 
 It is important that, if a company is controlled by a local authority and has significant borrowing or significant liabilities, they can be classed and held together with those of the local authority, so that it can properly calculate its liabilities and be certain that it can afford to service the borrowing undertaken in respect of all its activities. That is the simple purpose of the clause. I hope that I have helped to answer some of the points that have been raised.

Geoffrey Clifton-Brown: The Under-Secretary has been helpful and given us a reasonable explanation. I therefore hope that my colleagues will support the clause standing part of the Bill.
 Question put and agreed to. 
 Clause 18 ordered to stand part of the Bill.

Clause 19 - Application to parish and community councils

Question proposed, That the clause stand part of the Bill.

Geoffrey Clifton-Brown: It may be worth having a canter round the powers and duties of parish councils. The Bill seems very much in line with Conservative policy in that the Government envisage a much bigger role for parish and community councils. It would be interesting to probe what the Under-Secretary envisages.
 The clause gives parish councils very big powers, but that has been the case with all the clauses that we have debated. Clause 2(3) relates to control of borrowing. Clause 6 deals with protection of lenders. Clause 9 relates to capital receipts. Security for money borrowed is dealt with under clause 13. Guidance, inevitably, is dealt with under clause 15. Clause 17 is about external funds. 
 Clause 19 gives parish councils pretty significant powers. If we combine that with the powers and duties under clause 36, which relates to best value and parishes, we see that those bodies will perform a significant role. With all the increased borrowing powers, the Under-Secretary must envisage their performing significantly greater functions than they do at present. If they do perform greater functions, someone else, one hopes, is performing lesser functions. It would be interesting to know who is performing those. 
 One assumes that, all the way down the line, powers are being devolved. If we must have the regional bodies that we disapprove of, one hopes that they will delegate as many functions as possible down the line to subordinate councils—district, unitary and county councils. In turn, the Government are encouraging those councils—we approve of this—to devolve as many functions as possible to parish councils. One hopes that that is what is in the mind of the Under-Secretary, but also that the parish councils will be subject to as light a touch as possible. 
 We will debate best value and other issues, but the Government have loaded a number of requirements on to parish councils in respect of auditing, disclosure and so on. I do not know whether other members of the Committee have had this experience, but we are finding that parish councillors are standing down because of those onerous requirements. Surely we want to encourage as many people as possible to take up their civic duties and become councillors. The tradition was that parish councils were not a particularly burdensome office and that everyone from the spectrum of the community was encouraged to stand for them. If we make the post too burdensome we will simply turn parish councils into mini district councils, and then what will be the point of having this extra tier of local government? This is a circular argument and I simply probe the Minister on the matter.

Andrew Turner: I am pleased to support my hon. Friend with regard to the burdens on parish councils. Like him I support the devolution of more responsibilities to parish councils, but it has to be done on a fair and honest basis. One of the criticisms that I have received is that parish councils are given additional responsibilities by their district or county councils for matters for which the county or district councils may have equal responsibility—for example, grass-cutting in churchyards and along the sides of roads is a responsibility that can be exercised by county or district councils and also by parish councils—but some local authorities do not give parish councils sufficient warning of their intention to pull out of this activity.
 My parish council provides such an example. Before the beginning of the current financial year, parish and town councils set their precepts and budgets. My parish council did not require any money for grass-cutting because until that point the Isle of Wight county council had undertaken it. But the county council later in its own budget-making process provided insufficient resources—that is the term they always use—for grass-cutting in parished areas, although it continued to cut the grass in unparished areas. So a very small parish council with a small budget found itself having to pick up responsibility for keeping its verges and churchyards tidy. 
 Greater involvement and a more effective process of consultation are required between county or district councils and parish or town councils. I am not suggesting that the Government should legislate on or regulate these factors because any well-intentioned and well-run county or district council should pursue them as a matter of course. As hon. Members have suggested on other clauses, if we are not satisfied with the way in which our county or district councils behave—this applies also to parish councils—we have the opportunity to chuck the blighters out. 
 My hon. Friend the Member for Cotswold referred also to the snoopers charter created by the Government through the standards board. It requires parish councillors to provide a huge amount of information about their activities, possessions, friends and shareholdings, despite the fact that such information has no bearing whatever on their performance as parish councillors. 
 I give an example from the Daily Telegraph on 13 January this year. Chris Garner of Kings Langley in Hertfordshire is one of a huge number of parish councillors who have chosen to resign or retire or, in his case, not to sign the snoopers charter, and who have been disciplined by the standards board for England as a result of the charter set up by the Government under the Local Government Act 2000.

Derek Conway: Order. The hon. Gentleman makes an interesting point, but it would be helpful to the Chairman if he could relate the snoopers charter to the clause. We have to stick to the legislation before us, however interesting or challenging that might be. I am sure that he will do so.

Andrew Turner: I am grateful for that guidance, Mr. Conway. I was going to say that in applying the legislation to town and parish councils we must ensure that it is reasonable, having regard to their size and responsibilities. The snoopers charter has been applied to tiny parish councils with populations in the hundreds, rather thousands, and with a precept in pence, rather in tens of pence—tiny budgets—and yet is has led to the resignation and retirement, or in this case the disciplining, of parish councillors. There has, as my hon. Friend the Member for Cotswold said, been a great reduction in the resources that are available to the community through the democratic local structures.
 I will pause at this point, Mr. Conway, because I was going to say some things about parish partnerships and, because those are not mentioned in the clause, you may have ruled me out of order if I went in that direction. Perhaps I will have the opportunity to talk about them later.

Desmond Swayne: My hon. Friend began with grass-cutting and then made an appeal for a light regulatory touch. Is he aware that there are performance standards for grass-cutting? That is nonsense, because that any fool can see whether it needs cutting.

Andrew Turner: Indeed, that is so, although my own local authority did not consider that the grass needed cutting, or, if it did need cutting, the authority decided that someone else should take responsibility for that.
 The light regulatory framework is the most important issue of all in the context of local government law, especially in respect of small town and parish councils. Those do not need a burdensome and confusing regulatory framework, but I regret to say that that is precisely what many are taking on, and they have taken that on since the passage of the 2000 Act.

Robert Syms: In my experience, most parish councils do not need vast amounts of capital. The only authorities that need capital are parish councils with 10,000, 20,000 or 30,000 electors which turn themselves into town councils. They might, perhaps, have an income from the council tax of £200,000 to £300,000 and they could wish to renovate the town hall or do something in the centre of a town. I know that in the past many slightly larger parish councils had to wait in a queue for funding before being able to do what they wanted in their towns. Perhaps the Minister will tell us whether the provision would substantially change the regime, or whether things would continue along the same lines, with occasional capital grants being given to small and very small local authorities to provide for their own particular needs.

Christopher Leslie: It would be a great pleasure to debate all the provisions that surround parish council activities, but sadly, the scope of the clause allows us to talk only about the application of capital controls and rules and borrowing arrangements in respect of parish or community councils. While I would love to talk about the quality of the parish council scheme that we are developing in order to enhance and support the important work that parish, town and community
 councils undertake, to which the hon. Member for Cotswold referred, I would, unfortunately, be restrained from doing so by you, Mr. Conway.
 Hon. Members referred to the standards regarding the requirements for the proper disclosure of interests by all elected representatives with responsibility at parish or local level. Far from being a snoopers charter, this is a perfectly reasonable prospect and not an onerous burden on the 70,000 or so parish councillors in this country. Once again, I am afraid that to talk about that at any length would lead to my being ruled out of order. 
 The hon. Member for Cotswold has probably got the wrong end of the stick on the clause, but that is understandable, since it is complexly worded. The broad arrangements that exist at present will be tidied up, but they will remain mostly unchanged. We seek a simpler and more efficient statement of the rules on borrowing and capital for parish and community councils. Applications for borrowing consent will be appraised case by case and the old provisions will be continued under the proposed system. There will be no system of queueing for borrowing, as mentioned by the hon. Member for Poole, but we have introduced a new administrative regime with mechanisms to make parish borrowing quicker and easier to process. I hope that many local town and parish councils will benefit. 
 The hon. Member for Isle of Wight (Mr. Turner) talked a lot about grass cutting. In respect of capital spending, I cannot imagine that the grass cutting functions would be particularly affected unless the parish council wanted to buy a new lawn mower. It would have to be quite a large lawn mower to incur significant capital expenditure.

Mark Todd: Although I agree that the issue of grass cutting is scarcely relevant, I draw the Minister's attention to the experience of a parish council in my area—Barrow-upon-Trent—which is a minor housing authority. Through a bequest, it has a large number of almshouses for a tiny village. It therefore has a substantial capital base that it needs to maintain, and it occasionally funds improvements from its revenue resources. I corresponded with the Minister's predecessor about the difficulties it has in fitting its extremely unusual circumstances into the constraints placed on parish councils. The Minister need not answer at this point, but I would welcome his reviewing that correspondence and seeing whether there are better ways of assisting Barrow-upon-Trent to continue to thrive as it has under the enlightened leadership of its chair, Chris Barker.

Christopher Leslie: I will certainly look into the correspondence between my hon. Friend the Member for South Derbyshire (Mr. Todd) and my predecessor in this illustrious ministerial post. I cannot say that I have visited Barrow-upon-Trent. I am sure that that is my loss and that the villagers cut their grass to a high and consistent standard.
 We want to make the regime easier for town and parish councils. We considered whether the prudential system should be applied to larger parishes, but we concluded that it should not for the time being, given 
 that it would require a fairly sophisticated level of financial expertise. It would not be right to expect a parish council to have such expertise, and it would be a heavy burden to impose. We are tidying up the regime and the rules and making them simpler for parish and community councils to operate. That is the purpose of clause 19.

Geoffrey Clifton-Brown: The Minister slightly disingenuously said he thought I had got the wrong end of the stick. Clause 19(1) is pretty straightforward. It says that the following clauses will be applied to parish councils—clauses 2(3) and (4), 6, 9 to 13, 15, 16, 17(1)(a), (b) and (d) to (f) and (2) and 18. We are transferring significant financial controls to parish councils. Therefore, it seems quite reasonable to ask the Minister what powers and duties he expects the parish and community councils to take on.
 It is sometimes difficult to discuss one clause without referring to subsequent clauses. The Minister will be perfectly aware that under clause 115, the maximum £3.50 per elector multiplier will be increased to £5. In a parliamentary written answer to me on 4 December 2002, the Minister told me that under the current system a maximum of approximately £45 million is granted to parish and community councils and that that would increase to £65 million under the new system. 
 Clearly, the Government are expecting parish and community councils to take on significantly more responsibility, which is why they are putting this financial regime in place under clause 19. The Minister did not properly explain what extra duties, functions and obligations parish and community councils will be expected to take.

Christopher Leslie: I wanted to be helpful to the hon. Gentleman, and he will find that the provisions maintain the current roles and powers of parish councils. We are simplifying the rules, but they are broadly the same as those of the current system, because clause 1, which deals with the new prudential borrowing regime, will not apply to them. There will be a new power in relation to investment, which will give an additional freedom to parish councils. Most of the other clauses referred to in clause 19 relate to the controls on lender security, guidance capabilities and so forth, which do not change the roles of parish councils significantly.

Geoffrey Clifton-Brown: I hear what the Minister says about simplifying and not changing the roles significantly, but as we will find when we come to clause 36, which is to do with best value, auditing and other requirements placed on parish and town councils are now so complicated that they are to be given a grant of £30,000 to help them pay for all the auditing and best value. The Minister says one thing, but the reality on the ground is totally different.
Mr. Leslie indicated dissent.

Geoffrey Clifton-Brown: The Minister shakes his head, but my hon. Friend has given examples of cases in which, because of the complexity of parish councils—

Christopher Leslie: Not on capital.

Geoffrey Clifton-Brown: The Minister may say that, but I have read out the list of the clauses that, under clause 19(1), will refer to parish councils. They include clause 2 ''Control of borrowing'', clause 6 ''Protection of lenders'', clause 9 ''Capital receipt'', clause 13 ''Security for money borrowed etc'', and even clause 18 ''Local authority companies'', which we have just debated. Parish and community councils will need sophisticated management if they are to manage a subsidiary company, with all the management and auditing that that will entail.
 The Government need to think carefully about the role that they are giving parish and town councils. The Minister has not totally answered my questions, but clearly there is a limit to how far we can go on the matter before you rule us out of order, Mr. Conway. We have had a good canter around, so I will not ask my right hon. and hon. Friends to vote against the clause. 
 Question put and agreed to. 
 Clause 19 ordered to stand part of the Bill.

Schedule 1 - Capital finance: parish and community councils and charter trustees

Geoffrey Clifton-Brown: I beg to move amendment No. 46, in
schedule 1, page 71, line 25, after 'chargeable' insert 
 'and reasonably expected to be received in that period'.

Derek Conway: With this it will be convenient to discuss the following amendments: No. 47, in
schedule 1, page 71, line 26, leave out from 'chargeable' to end of line 32.
 No. 48, in 
schedule 1, page 72, line 5, at end insert 
 'or, where the interest payable is a variable amount established by reference to a base rate or other rate of interest for the time being payable (the ''reference rate''), it would do so if the reference rate remained unchanged to the end of the fixed period.'.

Geoffrey Clifton-Brown: We now move on to schedule 1, and that is logical because schedule 1 relates to most of clause 19.
 Members of the Committee will see that the provisions to which amendment No. 47 refers relate to temporary borrowings. Under the Bill, local authorities will have to meet 
''expenses . . . in respect of the period of account in which the expenses are chargeable''.
 That is fairly draconian, and we think that the provision should be more in line with reality. When local authorities make provision for expenses, those expenses should, reasonably, be expected to be received in that period, because all sorts of things can go wrong between them being chargeable and being received, and yet, if anything did, the provision would still have to be made. 
 Now, I am going to have a bit of fun. I will take hon. Members through amendment No. 47 slowly, because the drafting in paragraph 2(3) is pretty tautological and torturous. My hon. Friend the 
 Member for Poole looks puzzled; he wonders whether it is torturous and tautological; it is probably is, as torture and tautology are not mutually exclusive.

Andrew Turner: Tortuous, not torturous.

Geoffrey Clifton-Brown: I was making a spelling mistake, but my hon. Friend corrects me.
 Paragraph 2(3) says: 
''Sub-paragraph (2) does not apply'',
 and paragraph 2(2) says: 
''A local authority may only borrow''
 according to the conditions in sub-paragraphs (2)(a) and (b). That is quite straightforward. Paragraph 2(2)(a) relates to borrowing—et cetera, et cetera— 
''by way of temporary loan''.
 Paragraph 2(3)(a)(ii) says: 
''for the purpose of meeting expenses intended to be met by . . . borrowing in accordance with approval''
 so we are putting sub-paragraph (2) back in again. Having taken it out and applying it to borrowing on borrowing on borrowing, we are putting it back in again. If that is not circular and tautological, I do not know what is. 
 We then reach paragraph 2(3)(b). Having got borrowing on borrowing on borrowing, we get another lot of borrowing 
''for the purpose of repaying money borrowed in accordance with approval under sub-paragraph (2)''—
 we are putting it back in again. The provision also says where the new borrowing takes place. 
 The drafting of the schedule is unbelievable. I do not know what the draftsman was on the night that he drafted it, but his thought processes—or hers; I do not know—must have been racing ahead of him. The Minister must explain the schedule. My hon. Friends might have a better grasp of sub-paragraph (3) than I do, even after reading it several times, but the schedule is at best circular, and at worst completely unintelligible. Therefore, amendment No. 47 would delete paragraph 2(3)(a)(ii) and paragraph 2(3)(b). 
 Amendment No. 48 relates to how the principle of a loan and its interest will be dealt with. A loan will be amortised over several years with the interest calculated for each year and the capital divided by the number of years of the loan. There would be a capital repayment and an interest payment for each year—that is very straightforward. However, the schedule does not provide for a situation when a variable rate loan is taken out. That will be possible under the Government's new regime. Before the new regime, a loan would have been taken out with the Public Works Loan Board. It would probably have been a fixed loan with a high interest rate for several years. However, we are now encouraging local authorities to shop around and take out different types of loans. Variable rate arrangements will be arrived at more often, and there will be instances when local authorities will want to reschedule their loans. 
 I am probing the Minister, in the gentlest possible way, to tell us whether paragraph 3(2) allows sufficient 
 flexibility in the system. No doubt he is about to tell us.

Christopher Leslie: That was a very interesting speech by the hon. Member for Cotswold, but only because if I did not know better, which I do, it would seem as though he were walking through the Bill and looking at the amendments for the first time without being quite sure how they fit the schedule. However, I know that that could not be the case.
 Schedule 1 largely re-enacts the substance of schedule 13 to the Local Government Act 1972, and the wording that the hon. Gentleman said was unintelligible comes largely from that Act. Although I was not around at the time—I was born in 1972—I think that the Act was introduced by a Conservative Administration. [Interruption.] As my right hon. Friend the Minister for Local Government and the Regions points out, at that time the country was about to be plunged into a three-day week and perhaps the parliamentary counsel had difficulty writing the provisions clearly and intelligibly as he worked under candle light.

Geoffrey Clifton-Brown: The Minister may not have been born at the time, or he might have been just about to be born—I cannot remember whether he had been conceived when that Bill was introduced—but does he accept that two wrongs do not make a right? This House should produce simpler and more intelligible legislation. If the drafting was wrong in the previous instance, we should take every opportunity to put it right and make it simpler on subsequent occasions.

Christopher Leslie: I can certainly endeavour to pass on those comments to parliamentary counsel.
 Amendment No. 46 would put a significant constraint on the ability of parish and town councils to borrow temporarily for cash-flow purposes. That constraint is unnecessary and we resisted similar provisions under clause 5. My right hon. Friend the Minister of State dealt with some of those points. Amendment No. 47 seeks to delete provisions that would in turn raise doubts about the ability of a parish council to refinance borrowing or a loan and would also raise doubts about the ability to borrow temporarily pending the raising of a long-term loan. I am sure that the effect is accidental as the hon. Gentleman would not want to encumber local and parish councils in that way. 
 Amendment No. 48 is also unnecessary because paragraph 3 of schedule 1 allows the interest element to follow the charge for the year. While I can understand the direction that the hon. Gentleman is coming from, many of the freedoms for parish and town councils in the application of the rules relating to capital and borrowing are there. These provisions are carrying on. It is important that we get the accounting principles right for these councils. That is what the schedule seeks to do.

Geoffrey Clifton-Brown: First, I can assure the Minister that I have not just come fresh to these amendments. I might have been busy on planning matters for the past few weeks, but I have spent a few hours looking at this Bill. He has had nothing else to do but look at it for weeks and he has a team of civil servants behind him.
 No wonder he knows the answer to every question. We shall look carefully to see how much extra fuel he needs from behind him. He should be careful before he starts making those sorts of accusations.
 I accept that the wording on this tortuous and tautological subsection (3) has been lifted from another Bill. I make the point again that two wrongs do not make a right. George Bernard Shaw said that genius is simplicity; I would add that any fool can make it complicated. It is the easiest thing in the world to draft a clause to do what one wants and to make it hideously complicated. The difficult thing is to make it really simple while ensuring it still does what one wants it to do. That is the challenge I set for future draftsman. We have had a good canter around the schedule and I will not press the matter any further. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Schedule 1 agreed to.

Clause 20 - Directions

Geoffrey Clifton-Brown: I beg to move amendment No. 45, in
clause 20, page 8, line 19, leave out 'in writing' and insert 'made by regulation.'.
 We have had this argument more than once in the short time I have been on the Bill. Primary legislation is one thing; regulations by secondary legislation are a lesser thing; and directions, at a Secretary of State's whim, lack any form or scrutiny or control by this democratically elected Parliament. While I can understand the need for directions in dire circumstances, on the whole they should be avoided. Hence, we suggest in our amendment that the directions should be made by regulation. Will the Minister tell us what he expects the directions to contain, and provide some examples. That is important, and people reading the Hansard report of our proceedings would expect that.

Christopher Leslie: Amendment No. 45 deals with the three powers to issue directions. Clause 2(2) allows the Secretary of State by direction to waive any national borrowing limit for an individual authority. Under clause 4(2), the Secretary of State could impose a local borrowing limit on an authority by direction. Finally, under clause 16(2)(b), a direction could be used to allow revenue expenditure to be used as capital expenditure. The powers are essential to the Bill and the operation of the chapter. Directions are issued by writing a letter to an authority. They enable action to be taken quickly, but also sensitively, in individual cases. However, the amendment would remove them and require regulations to be made instead. That process could lead to unacceptable delays and reduce flexibility.
 I asked officials in my Department to look for other examples in previous local government legislation to see whether there were precedents for powers to direct. Lo and behold, they discovered at least 16 direction powers, not least in those provisions enacted between 
 1980 and 1997 under legislation passed by the previous Administration. Section 40(6) of the Local Government and Housing Act 1989 issues directions that particular expenditure may be treated as capital expenditure. Taking the example set by the previous Administration, we believe that in certain circumstances direction powers are important. The clause defines how the directions would operate.

Andrew Turner: It does not take a great deal of prescience to ask officials to look back and answer the Minister's question, if that person is the Minister. What takes a little more prescience is to ask officials to look back and anticipate the questions that may come from the Opposition. The Minister has not answered the question that was asked by my hon. Friend the Member for Cotswold, which was on what occasions directions of that sort have been used Why was it necessary for them to act so rapidly that the regulatory procedure was inappropriate?

Christopher Leslie: In the debate on a previous clause, when we were looking at one of the direction powers, I gave specific examples of capitalisation of spending by Plymouth and Thurrock councils in the financial year 1996–97. The previous Administration issued directions, not least at the request of the local authorities, to assist them in some of their reorganisation costs. I answered the hon. Member for Cotswold by giving examples of the sort of circumstances in which the three powers in the chapter might be used for specific local authority cases. I have covered some of the issues that may arise in the clause. It is not an unusual clause, and it is not unusual to have directions in a Bill. I hope that the Committee will accept that.

Geoffrey Clifton-Brown: There is one unintended consequence of what the Minister is saying. By referring to the Housing Act 1989 and its six powers of direction, he demonstrated to the Committee that Governments with large majorities tend to pass sweeping and all-encompassing legislation. That is not necessarily the best action to take. It may be that too large a majority is not the best thing for democracy. Having said that, the clause is straightforward, as is the amendment. However, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 20 ordered to stand part of the Bill.

Clause 21 - Accounting practices

Question proposed, That the clause stand part of the Bill.

Geoffrey Clifton-Brown: We have had a debate about accounting practices, regulations and the code. I have a simple question to put to the Minister. Clause 21(2) refers to accounting practices
''(a) which the authority is required to follow by virtue of any enactment, or
 (b) which are contained in a code of practice . . . made by the Secretary of State.''
 Under subsection (3), when there is a conflict between the two practices, those that are subject to Acts of 
 Parliament will take precedence. Why would the Secretary of State make regulations to make a code of practice that conflicted with a code of practice enacted by statute? Will the Minister tell us what on earth the Government have in mind and explain in what circumstances a conflict could arise?

Nick Raynsford: I am happy to assure the hon. Member for Cotswold that the purpose of clause 21 is to carry over into the new system the definition of proper practices for accounting purposes, which is part of the current capital control legislation. The definition has been amended to allow the codes of practice covered by the definition to be clarified in regulations. The present definition leaves the coverage somewhat vague and, given the importance of the definition, that is undesirable. The clause also provides a power to define accounting practices by regulation. That is necessary to allow important aspects of local authority accounting practice to be maintained, such as the treatment of capital receipts, which differs from normal accounting practices adopted in the wider world.
 The hon. Gentleman asked why there might be a conflict. If specific provisions applicable to local government are carried forward for a period, general accounting policy and practice may change over time and call into question specific local government practices enshrined in statute. Clearly, if they are enshrined in statute, they should take precedence. I have explained the logic behind the measure; it is a matter not of the Secretary of State making regulations that do not accord with statute, but of accepting the fact that we are bringing together usual accounting processes with specific statutory provision relating to local government.

Geoffrey Clifton-Brown: The Minister is making the best case for the two subsections to be reversed, in that the statute would be modified by a subsequent code issued by the Secretary of State. Is he saying that practices may change? If so, surely he would want a power to modify the practice under statute by a subsequent code. Can the Minister give me a further explanation?

Nick Raynsford: The hon. Gentleman will understand that complex territory can change over time. If there were any doubt about proper interpretation, the principle of the primacy of statute should be preserved. That is the sole purpose of the clause. Such a provision is sensible because, over the years, accounting practices can change. There can be variations in them and, while it is appropriate that usual accounting practices should apply whenever possible to local government, differences can occur because of specific issues that apply uniquely to local government. A conflict may arise in the future in respect of changes in accounting rules and practices that have not necessarily been informed by long-standing local authority statutory provision. The provision is in the Bill to avoid ambiguity or doubt, not because we envisage the Secretary of State approving, by regulations, practices that are in conflict with the statute.

Geoffrey Clifton-Brown: The Minister's explanation was reasonable as is subsection (2)(a). It is reasonable to say that that enactment could be changed by regulations. Why on earth one would want a code of conduct that would conflict with that I do not know. Therefore, subsection (3) does not make much sense. However, unless my hon. Friends are minded to do otherwise, I will not suggest that they vote against clause stand part.

Valerie Davey: I apologise for being absent at the start of the debate. The Committee has made better progress than I expected.

Nick Raynsford: That is not accidental.

Valerie Davey: That is unfair of the Minister, as the record will show.
 How are Government discussions with CIPFA on the proposed regulations progressing? CIPFA is concerned about how depreciation costs will be accounted for, and the organisation's briefing papers make some good points. It is concerned that local authorities should properly comply with generally accepted UK accounting practices and that good management information should be available to them to ensure that capital investment is properly sustained. Therefore, when they produce the regulations, the Government must allow for depreciation to be put into the accounts in the usual way under resource accounting, which now guides Whitehall, and they must resource it through grants. The Government reply, on page 8 of the Select Committee report, which CIPFA supports, states that ''discussions are underway''. It would be appropriate to hear how those discussions are going.

Nick Raynsford: They are proceeding very well. We have a constructive relationship with CIPFA, which does an enormous amount of work in this field. I am happy with the relationship and with our progress, but I can give no specific report on that progress at this stage. I will keep the Committee informed of any developments during the passage of the Bill and will try to ensure that a final agreement is publicised in the normal way, at the appropriate time.

Valerie Davey: I take it therefore that the Minister will not tell us exactly what conclusions the Government are likely to draw.
Mr. Raynsford indicated dissent.

Valerie Davey: In that case, I ask the Minister to look carefully at CIPFA's representations, as I am sure he will. I strongly support resource accounting, which will have a major impact in improving how public expenditure is managed and analysed, so we can get rid of the system that bedevilled us in the last century, which means that the capital infrastructure of the country, at local and national level, is not properly looked after. I am concerned that the new information should be available to local authority chief finance officers and members of local authorities. I would be worried if the Government, through the regulatory powers in clause 21, were not going to take that route. If, at any stage, the Government are going to reject CIPFA's advice I hope that Ministers will have the courage to make that clear in the House and give their
 reasons for doing so. The Minister may not want to say that he will, in due course, allow himself to be embarrassed by publicly saying that he does not accept CIPFA's advice, but given the hon. Gentleman's track record, I am sure that he will be able to give us an assurance.

Nick Raynsford: I fully support the hon. Gentleman's views about the importance of resource accounting, and I endorse his views about CIPFA's good work. However, the hon. Gentleman will understand that the ongoing discussions are not yet at a stage that enables me to make an announcement, and it would be premature to give a commitment before discussions are completed. I hope that I have made our intentions clear. We share the hon. Gentleman's objective of ensuring that an effective resource accounting framework is in place.
 Question put and agreed to. 
 Clause 21 ordered to stand part of the Bill. 
 Clause 22 ordered to stand part of the Bill.

Clause 23 - ''Local authority''

Geoffrey Clifton-Brown: I beg to move amendment No. 105, in
clause 23, page 10, line 21, leave out subsection (3).
 The amendment is designed to test whether my Machiavellian mind is too inventive.

Nick Raynsford: It is.

Geoffrey Clifton-Brown: The Minister says that there is no plot—no cunning plan. Well, we shall see.
 The amendment relates to the different bodies that can become precepting or money-raising bodies. They are listed under clause 23(1)(a) to (o). The problem, as always, is that paragraph (o), rather than just making a list, is a catch-all provision. It refers to 
''any other body specified for the purposes of this subsection by regulations under subsection (2).''
 My Machiavellian mind wonders whether in future that may include regional bodies. Perhaps the Minister can give us an assurance on that. 
 Under subsection (3), those as yet unspecified bodies, which might include regional bodies, may by regulations become precepting bodies. That gives rise to the possibility that regional bodies will introduce a regional council tax—the policy so loved by the Liberal Democrat party. One wonders exactly what the Government have in mind for those regulations. 
 Amendment No. 105 would leave out subsection (3), so that it was not possible to make additional regulations as to which bodies could increase their precepting powers and for what purpose—[Interruption.]

Derek Conway: Order. I do not know why, but afternoon Committees, regardless of the Bill that they are considering, are always slightly noisier than morning Committees. Perhaps that is because of the length of the day, but if hon. Members want to have
 protracted conversations with one another, they might withdraw to the Corridor, rather than conducting them in the Room.

Geoffrey Clifton-Brown: I suspect that the proximity of the time when we can go home is causing hon. Members to become a little excited and to concentrate on matters outside the strict limits of what we are supposed to be considering.

Desmond Swayne: There is a long way to go before that.

Geoffrey Clifton-Brown: As my hon. Friend suggests, we do not know whether we shall finish at 5 o'clock, but we shall explore those dark alleys in due course. No doubt the Government and the usual channels will keep the matter close to their heart until we get nearer the time. The Government Whip is nodding. I am happy to keep members of the Committee here until midnight on a Thursday night. No doubt his Back-Bench colleagues would be as annoyed with him as the Ministers would be, but I would be happy to be here at midnight debating these matters.

Robert Syms: On your own.

Geoffrey Clifton-Brown: No doubt my hon. Friend the Member for Runnymede and Weybridge would have something to say about it if he were left on his own, but I would not mind in the slightest. The Government Whip might have something to say to my hon. Friend afterwards.
 The amendment is perfectly straightforward. It is a probing amendment to elicit from the Minister—both Ministers are dealing with the Bill most helpfully—what is intended with subsection (1)(o) and what the Government have in mind as regards regulations under subsection (3).

Valerie Davey: I, too, hope that the Government will enlighten us about the bodies that they have in mind, why they felt that they needed the power in subsection (3) and whether any of the bodies that might come under subsection (1)(o) might not be accountable to local or, indeed, regional citizens. I am concerned because there are some quangos in the list of bodies—for example, the Greater London Magistrates' Courts Authority. I could talk about that at length, but you would rule me out of order, Mr. Conway. As it is threatening Kingston magistrates court, it is not an authority that is dear to my heart at the moment.
 As a result of that experience, which I am sure other hon. Members have had, I am concerned as to whether the Government have any intention, under the regulatory powers, to give levying powers to bodies that are not accountable to the electorate. We would have huge concerns about that. If a body has tax-levying powers, it must be held to account. Some of our concerns would be assuaged if the Minister could give us an assurance on that.

Nick Raynsford: Sadly, I fear that the effect of the Committee so far has been to prompt suspicions about the Government's motives on the part of the Opposition parties. We have frequently heard allegations of a control-freak tendency and about centralisation. On looking through a copy of one of
 the weekly municipal magazines some days ago, I was reflecting on how—[Interruption.] I have to disappoint the right hon. Member for Skipton and Ripon (Mr. Curry): I enjoy his column, but that was not the one that took my fancy. In fact, the column that took my fancy was ''In the Past'', which records what happened 50 and 100 years ago. Those hon. Members who feel that we are currently living in a period of repressive centralisation—in contrast with the past when local government had great freedom—should be aware of an interesting observation from January 1953. Local authorities were at that time informed by the relevant local authority journal, I forget which one—I shall not say which, in case I offend the other—that they had
''been advised to apply before February 21 for licences to erect some types of flag poles for Queen Elizabeth's Coronation.
The Ministry of materials have stated that enough homegrown flag poles should be available, but have added that government licences are needed for homegrown softwood poles, which are more than 3in in butt diameter.''
 Compared with that paradise of freedom in the 1950s, the Bill will substantially extend freedoms for local authorities.

Geoffrey Clifton-Brown: Will the Minister give way?

Nick Raynsford: Remember, it was in the time of a Conservative Government.

Geoffrey Clifton-Brown: I remember that there was a little doubt after the 1997 election about whether regulations had been issued that required flag poles to have planning permission—the Government hastily decided that they did not.

Nick Raynsford: The hon. Gentleman's experience in the Standing Committee dealing with the Planning and Compulsory Purchase Bill will undoubtedly put him in a strong position to advise us on this issue. I will not go in to that territory.
 The hon. Gentleman raised some suspicions about the use to which we might put the powers in the clause. I assure him that its purpose is entirely sensible and wholly innocent and I hope that when I have explained it, he will be satisfied. The clause determines which bodies are to be defined as local authorities for the purposes of part 1. The list in clause 23(1) is basically the same as that for the present capital finance system. Under clause 23(2) we would have power by regulations to add to that list, but we could add only bodies that fall within the categories that are specified, namely, levying and precepting bodies. That is the first important safeguard. 
 Draft regulation 22 was published for the Committee's convenience and hon. Members can see that it sets out our proposals and our initial intentions on using the regulation-making power. We propose to add the national parks authorities, the Broads authority and the Lee Valley regional park authority. Those authorities are all covered by the present capital finance system, but we have a special reason for not simply including them in the basic list in clause 23(1), linked with clause 23(3), which the amendment would remove. Subsection (3) enables us to apply the legislation in a modified form when bringing bodies into the system by regulations. The kinds of bodies in 
 question might be structured differently from the mainstream local authorities that are listed in subsection (1). 
 Before any of those less typical bodies were given full access to the freedoms of the prudential borrowing system, we must be satisfied that they can cope properly with the new responsibility of setting and monitoring an affordable borrowing limit. The power of subsection (3) would enable any additional safeguards to be introduced, if necessary. In some cases, for example, we may need to vary the requirements for the affordable borrowing limit to be set by the full council, which is the effect of Government amendments Nos. 11 to 24. They would adapt that duty to take account of the unique nature of the Greater London Authority and its functional bodies. It is conceivable that modifications of that duty, or of a different aspect of the system, would be needed for other authorities with special characteristics. I think that I am right in saying that the Lee Valley regional park authority does not have a full council, in which case one could not require the affordable borrowing limit to be set by the full council. 
 We will be considering whether such measures are necessary for the bodies named in draft regulation 22. They may not be, in which case those bodies will be subject to exactly the same regime as authorities named in subsection (1). However, the power could be required for some other body that we may, in future, want to bring within the capital borrowing system. The amendment would take away that flexibility, which could work to the disadvantage of bodies with an untypical structure, possibly denying them access to the system altogether. 
Mr. Clifton-Brown rose—

Nick Raynsford: I hope that in light of that explanation the hon. Gentleman, to whom I will of course give way, will withdraw his amendment.

Geoffrey Clifton-Brown: The Minister has given a plausible explanation, which no doubt is entirely correct, of the necessity for the clause. Will he therefore take the opportunity categorically to deny that it is in the Government's mind that any regional bodies are likely to be named under the clause and that they will have precepting powers?

Nick Raynsford: It is not in our plan that regional authorities should be treated in that way, but I would not want to rule it out. [Hon. Members: ''Ah.''] I say that for the obvious reason that if it was felt that a framework for extending the borrowing regime to regional authorities, if they were set up, was appropriate, that might be the most practical way of going about it, so we certainly would not want to fetter our discretion. However, that is not the purpose of the clause. It is constituted in this way for precisely the reasons that I have specified. The examples that I have given—the Broads authority, the Lee Valley regional park authority and the national park authorities—are the bodies that we have in mind at this initial stage.

Valerie Davey: The Minister has listed those authorities as examples, but they are not ones with which I am terribly familiar. How accountable are those authorities to the people in their area? Are they
 directly, or indirectly, elected? How will the people on whom, I presume, the levy may fall, hold the authorities to account?

Nick Raynsford: I, like the hon. Gentleman, am not a total expert because the London borough of Greenwich, like the London borough of Kingston, does not contain the Broads or any national parks, although there are very nice parks in our respective boroughs. The Lee valley, although it comes closer to Greenwich than it does to Kingston, does not extend across the River Thames into Greenwich.
 I am not totally conversant with those bodies, but I understand that they are constituted to look after the specific needs of their areas. Obviously, national parks have areas of outstanding natural beauty and recreation; the Broads have similar characteristics; and the Lee valley is an important recreational area for London, which may, depending on any decisions about an Olympic bid, have an important role in the future development of leisure activities in London. I understand also that those bodies contain representatives of relevant local authorities and local interests, but they have a much narrower focus than normal local authorities, which have a range of responsibilities. 
Mr. Clifton-Brown rose—

Nick Raynsford: I am not sure whether there is a national park in the Cotswolds, but I shall certainly give way to the hon. Gentleman.

Geoffrey Clifton-Brown: No, we do not have a national park in the Cotswolds; we hope that we will never get one, but we fear that we may. We have a perfectly reasonable planning regime in the Cotswolds area of outstanding natural beauty which serves the people and the area well, whereas the south downs has had a new national park imposed on it, which it is not particularly happy about it. Will the Minister confirm that the clause is providing a new precepting power for the broads and national parks and, if so, are the people living in those areas about to have a new stealth tax imposed on them?

Nick Raynsford: No. The hon. Gentleman is clearly in paranoia gulch this afternoon. There is no question of new precepting powers. Those bodies are currently precepting bodies, and those particular clauses and regulations are designed to make the appropriate arrangements in relation to the new capital finance rules.
 I am sorry to hear the hon. Gentleman making disparaging remarks about national parks—they are greatly loved and much appreciated by the people in the areas where they exist. I am aware that some local councillors take a different point of view, but my experience of national parks elsewhere, and the representations that I have received about national parks, show that there is considerable popular support for them and for their objective of ensuring both the proper protection of the countryside and access to the countryside for leisure purposes by people who otherwise would not have those opportunities.

Desmond Swayne: The Minister may be correct that national parks are a good thing, but the legislation creating them is now 50 years old, and therefore may be wholly inappropriate to particular areas. With regard to the proposed New Forest national park, the statutory criteria for laying down the boundaries will give rise to a national park that is too small to be sustained. It would be better if new legislation were to be devised.

Nick Raynsford: I rather regret entering this territory, because I shall probably be ruled out of order if I respond to the hon. Gentleman's question. His question does not relate to the potential borrowing facility for a national park authority, which is the only reason for the issue falling within our remit.
Mr. David Curry (Skipton and Ripon) rose—

Nick Raynsford: I give way to the right hon. Gentleman who has, I believe, a national park on his constituency border.

David Curry: I have a national park in the heart of my constituency. I also have a large area of outstanding natural beauty in my constituency. When the Minister mentioned that national parks were areas of outstanding natural beauty, he was eliding two separate categories.
 The national parks are greatly loved, but largely by the people who live outside them. Those who live inside them often have to cope with some pettifogging rules, particularly on planning and development. There is a perennial argument about whether development and economic development should be one of the fundamental purposes of the national parks. That is not the case at present. 
 The Minister is welcome to visit my national park. If he does, I will ensure that he encounters a range of opinion, not all of which will be quite so ecstatic as he has just adumbrated.

Derek Conway: Order. We are all enjoying wandering around the trails of national parks, but we need to return to the amendment under discussion. This is not a clause stand part debate.

Nick Raynsford: Thank you, Mr. Conway. I shall immediately retreat from national parks to the principle behind the amendment, which is to remove the flexibility to allow additional specific bodies without the same structure or purpose as a local authority to become a beneficiary of the capital finance regime. That is a sensible provision, for the reasons that I outlined earlier. I suggest that the hon. Member for Cotswold withdraws the amendment.
Mr. Turner rose—

Nick Raynsford: I shall give way briefly to the hon. Member for Isle of Wight, an area that is not yet, as far as I know, a national park.

Andrew Turner: It is not, but none the less the Minister would be welcome to visit the island. Will the Minister explain whether the power could be used in conjunction with the powers in clause 19 to enable parish and town councils to take advantage of the provisions of the chapter?

Nick Raynsford: Yes. As I understand it, parish councils would be eligible in certain cases, if we were to reach a view that it was appropriate for the capital finance regime to apply to parish councils. As the hon. Gentleman will know from the earlier discussion, we do not believe that that is appropriate, and that is why separate arrangements were made for parish councils. However, if certain quality parishes, or best-value parishes, were to expand their role significantly, and if it were felt in future that what has been proposed was appropriate, my understanding is that the provisions would make that possible. On that note, I hope that the hon. Member for Cotswold will withdraw his amendment.

Geoffrey Clifton-Brown: National parks come within the scope of this clause. Before every hon. Member whose constituency contains a national park writes to me, I want to put on record that I do not dislike national parks. However, my right hon. Friend the Member for Skipton and Ripon has rightly mentioned some of the problems faced by people who have to live and work in national parks and who have to abide by their regulations.

David Lepper: I welcome the hon. Gentleman's clarification. However, he commented earlier on the proposed south downs national park. Is he on record as saying that the Conservative party is opposed to the establishment of that national park?

Geoffrey Clifton-Brown: No, I am not on record as saying that. What I said—I hope that Hansard will clarify what I said—was that many people who live in that huge area are extremely worried about the issues that my right hon. Friend the Member for Skipton and Ripon has raised. Some of the stronger regulations—which can sometimes be imposed with a pretty heavy hand—can be difficult for people who live and work and run businesses within national parks. That point is well worth making. By and large, those who will administer the new national park will be indirectly elected, not directly elected. Power is being taken away from local authorities, which have directly elected members on national park authorities. There is therefore a democratic deficit in national parks.

Desmond Swayne: I am grateful to my hon. Friend for allowing me to put on record, unequivocally, that I am opposed to the New Forest national park as currently proposed.

Geoffrey Clifton-Brown: I think that we have wandered the trails and paths of national parks enough. It is clearly on the record that they are not universally admired, but that, in general, the concept is good.
 I am not at all convinced that the Minister will not use this clause to specify regional bodies with precepting and borrowing powers. The Government love such regional bodies, and I cannot see how they would be able to function without those powers. This clause is the Trojan horse by which the Government will introduce them. 
 We have explored this matter fully and there is no point in encouraging my colleagues to vote for the 
 amendment, so I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 23 ordered to stand part of the Bill. 
 Clause 24 ordered to stand part of the Bill.

Clause 25 - Budget calculations: report on robustness of estimates etc

Geoffrey Clifton-Brown: I beg to move amendment No. 108, in
clause 25, page 10, line 42, leave out 'the' and insert 'a properly qualified'.
 Clause 25 deals with the powers of the chief finance officer. The Government may have got their clauses the wrong way round. Clause 30 refers to the definition of ''chief finance officer'', which is contained in section 114 of the Local Government Finance Act 1988, subsection (3) of which says: 
''The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the expenditure of the authority incurred . . . in a financial year is likely to exceed the resources''.
 From that subsection, one can begin to see that chief finance officers have an important and far-reaching role. Subsection (6) says: 
''If the chief finance officer is unable to act owing to absence or illness his duties under subsections (2) and (3) above shall be performed''
 by, the subsection continues, a member of his staff. 
 It is important to consider the training and qualifications of chief finance officers who have such far-reaching powers. They should be properly qualified to exercise their functions. The Minister will probably say that the amendment would be burdensome and unnecessary.

Nick Raynsford: Correct.

Geoffrey Clifton-Brown: In that case, I shall put an idea to the Minister. People who are not qualified to carry out their roles should be assisted by members of other authorities who are properly qualified. Someone who is trying to keep an authority on the straight and narrow financially, and trying to warn profligate councillors that they are running into trouble, will need to have a convincing argument about why they should not be profligate. That person is more likely to be convincing if he is properly qualified.

Nick Raynsford: Yes.

Geoffrey Clifton-Brown: The Minister agrees. We are getting on nicely together. Perhaps our amendment will be accepted.

Nick Raynsford: No.

Geoffrey Clifton-Brown: I thought that I was carrying the right hon. Gentleman too far along the road of temptation, but at least we are half way along it. Before more far-reaching events occur, surely a properly qualified officer from another authority should examine the situation. I commend to him and my colleagues amendment No. 108. The Minister has been agreeing and disagreeing with me, but I have not heard his explanation. It had better be a good one,
 otherwise I may urge my colleagues to press the amendment to a Division.

John Pugh: We oppose the amendment. I believe that we can trust local authorities to look after their finances. They do not need undue interference from the Secretary of State. If we can trust them to look after their finances, presumably we can trust them to appoint properly qualified financial staff. If we cannot trust them to appoint properly qualified financial staff, we cannot trust them to look after their finances. The amendment goes against the grain of other amendments.

Nick Raynsford: It now leaves me to disappointment both the Conservative party and the Liberal Democrat party for surprising reasons. I agree wholeheartedly with the hon. Member for Cotswold who emphasised the importance of local authority chief finance officers who have considerable responsibilities being properly qualified. The only matter on which I disagree with him is the need for his amendment. It is wholly unnecessary.
 The officers referred to in subsection (3) are required to be members of one of the professional accountancy institutes under part VIII of the Local Government Finance Act 1988 and amending legislation. Nothing needs to be added to the existing provisions on qualifications. No doubt the hon. Member for Southport would prefer us to repeal the provision, but we feel that it is a sensible and necessary safeguard. It is appropriate and there is no need to add to it. 
Mr. Turner rose—

Nick Raynsford: I urge the hon. Member for Isle of Wight not to prolong the debate. The amendment is unnecessary and I hope that the hon. Member for Cotswold will agree that it should be withdrawn.

Geoffrey Clifton-Brown: The Minister's explanation was useful. I must admit that I was not aware of the provision to which he referred under which accounting officers have to be members of a recognised body. That goes a long way towards meeting the purpose of my amendment.
 Will the hon. Member for Southport read the words that loom large in clause 25(2) and other parts of the Bill. In such circumstances, the authority has only to ''have regard to'' profligate councillors. It cannot dictate to them. That is the real problem. Although the authority may appoint an adequate accounting officer, he is more likely to convince councillors that they are erring if he is properly qualified. It has been useful to have on the record the Minister's explanation. On that basis, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Andrew Turner: I do not want to detain the Committee unnecessarily, but I refer to subsection (2) which, as the Minister pointed out, requires the authority to have regard to the report by the chief finance officer. My concern is that that imposes an obligation on a
 corporate body. It is difficult to demonstrate whether a corporate body has regard to particular rules or regulations or the law. It is much easier to ask individual members of corporate bodies whether they have had regard.
 In my judgment, many members of corporate bodies do not have regard because they do not always understand the advice that they are given, no matter how well qualified the chief finance officer may be. Individual members do not understand and therefore cannot have regard, or in some cases, they understand but decide not to have regard or even to act perversely having had regard to the advice. 
 How may one clarify a clause of this type to make it clear to individual elected members that it is their duty, not only the duty of the chief finance officer, to blow the whistle? Nine out of 10 elected members who claim no interest in or no understanding of financial matters could allow two or three elected members to lead them down the garden path.

Nick Raynsford: As the hon. Gentleman implied, there is an interesting tension between the role of the chief finance officer and the role of the council. We have sought to put in place a proper relationship that recognises, as the hon. Member for Southport emphasised, that councillors are democratically elected and should ultimately carry responsibility and take the final decision. We recognise that. However, they should be properly advised and the chief finance officer should have not only the power to make representations but the ability to do so and a clear statutory obligation to make a report in certain circumstances.
 We feel that we have achieved the correct balance. Councillors will be advised. They have a duty to have regard to that advice. They make the decisions, but if they seem to have acted perversely, I have no doubt that there would be electoral consequences when such actions were exposed. However, if very imprudent decisions were taken by the alleged profligate councillors referred to by the hon. Member for Cotswold—I hope that he was not referring to his own councillors in Gloucestershire; they will not be at all amused to hear him describing them as profligate, but we should let that pass—and they ignored advice from a chief finance officer, for example on the adequacy of reserves, provisions in the Bill propose fall-back arrangements. The Conservatives will support us if they want to see proper, prudent financial management and the protection of authorities from decisions that could expose the council tax payers to serious difficulty.

Geoffrey Clifton-Brown: Of course I was not referring to any councillors in the Cotswolds. I referred to profligate councillors in extreme circumstances. The Minister was just causing mischief.
 On a more serious point, will the Minister tell the Committee at what stage he expects the Government officers to become involved when chief accounting officers make reports under clause 25 and, more seriously, about minimum reserves under clause 26?

Nick Raynsford: I do not wish to tempt your wrath, Mr. Conway, by moving ahead to clause 26, so I will
 confine my remarks to clause 25. Clearly, it would be a matter of concern if a chief finance officer had made a report that had been capriciously ignored or rejected without good reason by a local authority. We must achieve a balance between maintaining the democratic legitimacy of local authorities reaching their own decisions, and creating a prudent framework of financial management. That is what the structure is designed to achieve. We would not necessarily expect to be involved immediately. However, as we shall say when we discuss later clauses, the Government believe that there should be a reserve power to cope with a case in which there are grounds for believing that an authority is acting imprudently, running its reserves down dangerously low, and ignoring the professional advice of its chief finance officer.

John Pugh: Are we not in danger of setting up rules that would apply to councils but not national finances? In this place, people have, from time to time, voted through budgeting proposals in a fairly inattentive—and even downright reckless—way. We are setting up a different kind of regime for local authorities, and may be in danger of overstating councils' capacities for profit. I would like the Minister to confirm that the chief finance officer has the capacity not only to advise the authority but to declare the authority's budget illegal when it is running into deficit. Will the Minister say whether, if the authority continues to act against that advice, there would be consequences for the councillors that agreed to it?

Nick Raynsford: The hon. Gentleman makes a perfectly good point. Under clause 30, we intend to amend the regime set out in section 114 of the Local Government Finance Act 1988, which gives the chief finance officer power to serve a notice prohibiting an authority from incurring further expenditure in such circumstances as those that the hon. Gentleman outlined. That is a pretty draconian power, and in certain circumstances it might have the perverse consequence of holding back an authority that is taking steps to improve its financial affairs. I shall say no more about that now, as we will cover the issue under a future clause, but add that we recognise the important powers of chief finance officers. They should be able to report freely and fearlessly on their authority's financial affairs, and councillors should have regard to their advice. That, in our view, is the correct balance, and I hope that hon. Members accept that and agree that the clause should stand part of the Bill.

Andrew Turner: The Minister has made it clear that there is a lack of clarity. He said that councillors, not the authority, should have regard to the chief finance officer's advice. Perhaps we will debate that at greater length under clause 30. However, the issue is whether we require councillors to have regard to the advice of the chief finance officer, rather than allowing them merely to look at the report on paper, and allowing one or two of their number to lead the other councillors down a road that might be inappropriate.
 Question put and agreed to. 
 Clause 25 ordered to stand part of the Bill.

Clause 26 - Minimum reserves

John Pugh: I shall not move amendment No. 80, Mr. Conway. No, sorry, I shall move it.
 I beg to move amendment No. 80, in 
clause 26, page 11, line 16, leave out 'controlled'.

Derek Conway: With this it will be convenient to discuss the following amendments: No. 81, in
clause 26, page 11, line 16, leave out from 'reserve' to end of line 19 and insert 
 'the chief finance officer shall notify the District Auditor of the balance of that reserve at the end of the financial year under consideration, and if the District Auditor considers that this balance of the reserve is not appropriate, he shall notify the Council of his opinion and publish that notification.'.
 No. 82, in 
clause 26, page 11, line 20, leave out subsection (3).

John Pugh: I am opposed to the powers in subsections (2) and (3), which are given not to the Secretary of State, but to ''the appropriate person''. I question the need for those powers. It has long been the practice of local authorities to act carefully as regards their reserves. That is in the culture. Measures emphasise the need to do so, and district auditors continually remind local authorities of that duty. District auditors and treasurers have a right forcefully to remind councillors of the state of their reserves. That is how things stand. The issue of worrying about reserves is sufficiently at the forefront for local authorities. It is not a matter that they take up from time to time; it is a matter that anyone running a local authority concentrates on.
 The new power that is given to the ''appropriate'' power represents an unwarranted interference in a local authority's activities. It is unclear what the intent is for the power. It runs, to some extent, against the democratic mandate, a point that I can illustrate from personal experience. 
 I had a role in setting the budget of my local authority from 1993 to 2001. It was cash-strapped, and it had an appalling rate support grant, which, I am glad to say, the Minister has done something about recently. It had heavy social service commitments, and there were continual demands from central Government to passport education, which we religiously and dutifully did. In most years, the district auditor commented on the level of reserves. In most years, the schools got all they wanted and their funds and balances remained appreciable. However, we were in no year able to set balances at the level that we wanted. We were able to set budgets that were not reckless and which were approved by the treasurer. We used other devices, such as slowing down the rate of spend on capitalisation, but we persistently had low balances, with a ratio of 5:1 between schools' balances and the local authority balances. 
 During that time, the electorate, confronted with what I thought was a tolerable council tax increase, rewarded those who set those budgets. Year after year, I am happy to say, the Liberal Democrat presence on the council grew. In 2001, the advice of the district auditor and treasurer were dutifully taken by my 
 successor who increased the balances. That went against the wishes of the local electorate because the increase in council tax was appreciable, and he promptly lost his seat. 
 There is a tension between democratic accountability and financial regulation, and local people can choose which way they wish to go on that. I am reluctant to give the power of setting the council's budget to the borough treasurer who will be happier the greater the balances are. 
 I wonder what the purpose is behind the Whitehall regulation that we are now imposing. It seems opaque. In my view, we have reserves for unexpected contingencies. There other ways in which local authorities can deal with those—slowing down the rate of spend, increasing capitalisation or even making cuts—but there are circumstances in which reserves may legitimately be reduced. The Government's reserves will reduce if we start a war in Iraq, that being the sort of occasion on which reserves are substantially reduced. 
 The Bill seems to say, however, not that reserves should be varied rationally and prudently—I would agree with that—but that they should be parked as dead money throughout the budget year. I am not entirely clear what will happen once a local authority has set its reserve at its budget session in March. Will it have to keep to that level all year? May it use that money at all? Is the reserve simply to be a vast morass of unutilised money right across the country? It strikes me that clause 26 is needless and meddlesome interference. Local authorities do not want it. So far as I know, CIPFA has not demanded it. It takes freedom away rather than giving it. It adds a new restriction, which the Minister has not denied, to a Bill that is supposed to be about localisation.

Edward Davey: I have seen CIPFA briefings that state that it is very much against this power.

John Pugh: Exactly so. The clause seems to be something dreamt up by a ministerial mind for which there is no basis in the realities of finance.
 If the Minister wishes to set a rule about the minimum reserves, why is there no rule on maximum reserves. What would we do about a particularly anal public authority that collected public money and did absolutely nothing with it. If that is licit, it is nonsense. The Minister seems, however, not to be bothered about that, worrying instead about minimum reserves. If he wants to create a power as heavy-handed as this one, he needs to demonstrate that there is a real problem. Yet there is no such problem high on the agenda in the local authority world.

Robert Syms: I agree with the hon. Member for Southport. Local authorities spend a lot of time considering what reserves would be appropriate. I agree, too, with his point about whether it is good or bad to have large or small reserves. What local authorities really need are reserves that are adequate to cover an emergency. Piling up money, which means raising too much from the electorate or not spending
 sufficiently, is not an efficient and effective way of conducting local government.
 Those judgments are best made by local authorities, which have experience of their own financial controls and can look at how they have conducted their affairs over several years. It is not necessary for central Government to set a minimum reserve figure. If that happens, people will start to budget above the minimum, so that they do not fall below it. Inevitably, then, they will start to pile up more money in the reserves than is necessary. 
 There would be a slight benefit if the Government set minimum reserves: we may get some warning of the impositions that the Government intend to place on local authorities in any given year. In recent years, there have been major impositions on local authority pension funds which have put pressure on the authorities, and major tax changes, including increases in national insurance contributions. The Government may give local authorities some indication of how they intend to hit them, and their balances, in ways that their treasurers may not have foreseen. 
 We have professional people in local government who are paid good salaries to use their judgment to make recommendations to the authorities. They do not need to be second-guessed by people in Whitehall. When local authority treasurers make the wrong judgment, they have the embarrassment of explaining to council members why reserves have fallen too low, and that is a discipline in itself. It is not easy to make those judgments, and we can see in many local authorities the vagaries of social services budgets, such as children being placed in care outside their local authority area and bills that exceed the budget, which cause problems. However, given the history of local authorities and the robustness of their management methods, local treasurers, and not the man in Whitehall, are best placed to make these decisions.

Andrew Turner: I have some sympathy for the amendment, but I also have some sympathy—not a lot, but some—for what the Government are trying to achieve in the clause. I have fairly direct experience of four local authorities, but I do not have the experience of living in the area of a well-run, or should I say a Conservative-controlled, authority. [Hon. Members: ''Ah!''] I was going to say a well-run Conservative authority, but of course that would have been tautological because all Conservative authorities are well run.
 Before I got this job I worked for Southwark council, which was run by new Labour and was highly effective in some respects. I now have the privilege of representing an island that has elected a Liberal Democrat-led council. I shall a few words about that later. I served as a member of Oxford city council, which was a broadly old Labour authority, and I have experience of Hackney, which at that time was a loony Labour authority. 
 In the amendment, the hon. Member for Southport has assumed that all authorities are broadly as competent as a Conservative-controlled authority. It happens that when he was responsible for setting the 
 budget in Southport, although we only have his word for this, it was a well-run Liberal Democrat authority.

John Pugh: A good percentage of those budgets, although by no means all of them, were made in collaboration with the Conservatives, and some in collaboration with Labour, so at least some of them must have been right.

Andrew Turner: I thank the hon. Gentleman, and I apologise once again for confusing Stockport with Southport. Of course, Sefton, of perhaps Crosby, is his authority. The fact is, however, that, influenced by the Conservatives, that was a well-run authority.
 Not all authorities are as well run as Conservative-controlled authorities. I have to say that Oxford city council was a reasonably well-run authority and, as I said, Southwark was a reasonably well-run authority when I had the privilege of working for it. However, other authorities work in a capricious and barmy way. The problem with the clause and the amendment moved by the hon. Member for Southport is that they do not recognise the difference between authorities. 
 The Government, with the help of the Audit Commission, have erected a new structure called comprehensive performance assessment, which checks out authorities, scores and marks them, checks how well they have achieved their performance indicators and sets targets. The assessment concluded that 13 authorities were poor. I judge that the London borough of Hackney was a poor authority when I was interested in its performance. Twenty-two authorities were assessed as weak and 39 were assessed as fair, and the Isle of Wight authority is one of those. 
 It is absurd for Ministers or Liberal Democrat spokesmen to assume that all authorities are the same and require the same treatment. I wish that the clause made reference to the quality of local authorities' performance and contained an abjuration by the Minister of powers that would apply to authorities that are doing reasonably well. 
 As my hon. Friend the Member for Poole said, members of many authorities take care with their reserves. They pay close attention and budget sensibly over a four-year cycle. However, it is also true that several local authorities are wholly incompetent, and others cover the range in between. A most spectacular example is authorities that spend the four-year cycle running up their reserves in years one, two and three while setting absurdly high council tax increases. Mysteriously, in the year before the local elections, such authorities set a tiny council tax increase and their reserves plummet—my authority in the Isle of Wight did that in 2000–01. 
 I would not say that that is typical of Liberal Democrat authorities and, indeed, the hon. Member for Southport demonstrated that, but it is not unknown. The clause tries to deal with that but it is not satisfactory because it is an all-purpose blunderbuss that could be applied to any authority. I would prefer the provisions to be narrowed down and focused on authorities that are widely recognised as 
 bad performers yet have chosen not to take the opportunity to improve. 
 None of that denies the responsibility of local politicians and national politicians who act locally to draw the public's attention to the failure of their local authorities. That is the strongest argument in favour of the amendment. If we do not tell people that their authorities are performing badly and draw evidence of that to their attention, they are less likely to take the necessary action. 
 I shall not say that I welcome the CPA because it has been clouded by responses that local authority officers have given, and judgment has been clouded by assurances given by local authority officers that all is for the best in the best of all possible worlds. That is the kind of world in which the hon. Gentleman appears to live. We need to invigorate local democracy by giving people understandable information that the CPA and we local and national politicians have to hand in order to allow them to make a necessary response.

Mark Todd: The principle of the clause relies on the estimation ability of a local authority. In my experience, there is a substantial error margin when predicting the balance at the end of a financial year. There are many variables. One figure is eventually arrived at which is a factor of several pluses and minuses. Relatively small variances in the number of those figures can produce a substantial variance in the final balance figure. It is not surprising therefore to find that that occurs on a regular basis. In my experience, treasurers' tolerance or knowledge of the variables involved varies significantly, and therefore their guidance on the figure that they recommend as appropriate is not always as watertight as one would wish.
 The second issue is that the measure places considerable power in the hands of one individual officer in an authority and there is the possibility of a breakdown of relationship either within the management group of an authority or between that officer and the elected members, in which that would become an unfortunate focus of action. Perhaps the Government will reflect on those points. I will not support the amendment, but I think that a little more thought should be given to exactly how the provision will work.

Geoffrey Clifton-Brown: I am pleased that the confusion in the Liberal Democrat ranks was eventually sorted out and that they decided to move the group of amendments, because we have had a useful and important debate.
 The setting of reserves is an important subject. In most authorities, the relationship between the chief officers and the elected councillors is good, so despite the mischief that the Minister was trying to cause in respect of my Gloucestershire councillors, we are referring to a comparatively small number of badly run councils, where the councillors on the whole do not accept the advice of people who are highly experienced, such as the chief accounting officer. 
 My hon. Friend the Member for Isle of Wight used the interesting phrase ''invigorate democracy'', which 
 is exactly what we are talking about. Democracy involves greater freedoms for elected representatives, but that allows greater freedom for elected representatives to get it wrong. We must all accept that there will be occasions when elected representatives will get it wrong. The problem arises when they get it so badly wrong that the authority cannot deliver its statutory level of services. The higher authority, the Secretary of State, and the district auditor have a role to ensure the continuance of the services.

Desmond Swayne: Does my hon. Friend agree that the determination of the level of the reserves can in certain circumstances have a profound effect on what the local authority is able to carry out? While it may be perfectly sensible to have a certain level of reserves in mind that are appropriate for some local authorities, they might be wholly inappropriate in different circumstances in other local authorities.

Geoffrey Clifton-Brown: My hon. Friend is right. That is why it is wrong to have too much central direction, for example in the percentage level of the budget that every authority would be required to have in their reserves. Some form of formulaic calculation such as that would be totally wrong, because each local authority is different. As the hon. Member for Southport has made clear, there are a number of ways of dealing with contingencies, other than the reserves—although the reserves play an important part in the local authority being able to meet its budgeted commitments. It has been an interesting debate. Although I think that the hon. Member for Southport moved the amendment with a great deal of common sense, I hope that he will not press it to a Division.

Nick Raynsford: It has been an interesting debate. When the hon. Member for Southport spoke to the amendments, I noted initially that he was a little unsure whether he was supposed to do so, and that he did so almost as though he were speaking against the provision of the clause, not the proposals under the amendment, which would set up a new relationship—in our view, not an appropriate relationship—between the district auditor and the local authority. I stress at the outset that our objective is to reinforce the process of local democracy, where local authorities should democratically determine their finances and arrangements in a responsible, thorough and prudent way. That is our objective. I wholly agree with the views expressed by the hon. Member for Isle of Wight about the importance of encouraging local authorities to exercise their powers effectively and prudently, and to encourage a thriving local democracy.
 We must recognise, however, that things occasionally go wrong and it is naïve to assume that intervention will never be needed. The hon. Gentleman referred to a period working in Hackney; I wholly agree with him that the council was very badly run indeed for a long time under different administrations—one was Labour, there was also a Liberal Democrat council, and a period when the Conservatives were in charge. I make no party point; 
 the council was poorly run and got into serious financial difficulties, which could have been avoided had the provisions in the clause existed at the time and had there been a possibility of requiring action at an earlier stage to prevent some of the problems that the authority faced. I will return to the matter in a moment. 
 I stress that this is a fallback proposal—a reserve power—not something that would be required in the normal course of events. We expect local authorities to operate properly and prudently, based on the advice of their chief finance officer, and to set their reserves appropriately to match the authority's needs. 
 I agree with my hon. Friend the Member for South Derbyshire that what we are discussing is not an exact science; there is no formulaic way to approach it. It requires judgment and there must be a margin for error and for changing circumstances. We want to encourage authorities to be prudent and to manage themselves well.

Geoffrey Clifton-Brown: Will the Minister accept my philosophical argument that democratically elected councillors should have the power to get things wrong? At what point in the equation would the Minister expect the provisions to be used?

Nick Raynsford: As I have already said, I do not expect them to be commonly used. They are a fallback measure; ideally we hope that they will never be used because the provisions in the clause 25 will help to ensure a framework for prudent financial management and appropriate reserves, giving a cushion for comfort in the event of unforeseen circumstances. Therefore there will be no need for intervention. The provisions are a fallback against the circumstances in which an authority does not act prudently, disregards the advice of its chief finance officer and is heading for serious financial difficulty. Only in such circumstances do we envisage any need for intervention.
 On the hon. Gentleman's philosophical point, yes, indeed, councillors must be able to make mistakes, but there comes a point where the degree of the mistake has such a widespread impact on the delivery of services in an area—I will explain it in a moment when I refer to Hackney—that the authority has to go cap in hand to another body for financial support because of its mismanagement, and then the wider issue arises, that had action been taken at an earlier stage the problem could have been averted. No reasonable person would oppose the principle that a long stop to guard against those circumstances is a sensible provision in the overall framework. 
 The amendment tabled by the hon. Member for Southport would remove the power to set minimum reserves by regulation and substitute a duty on the auditor to notify the authority if proposed reserves were inappropriate. Amendments Nos. 80 and 82 are consequential amendments. 
 It is already part of the remit of local authority auditors to review the authority's financial standing and the level of reserves, which is an important part of financial standing. It is achieved by the code of audit practice, which is approved by resolution of each House of Parliament. Auditors also have a statutory 
 duty to consider making a public report if any matter needs to be brought to the notice of the public. That well-established framework is entirely adequate to ensure audit scrutiny and to comment on reserves. In practice, auditors make public reports on the levels of reserves but, unfortunately, experience has shown that authorities do not always heed the auditors' advice. 
 The need for a statutory framework on reserves to be strengthened has been demonstrated by the evidence of the Audit Commission in its surveys, which have been summarised in our response to the Select Committee report on the draft Bill. We highlight the fact that it found that 12 per cent. of authorities in England and Wales had inadequate reserves and the proportion was greater among the larger authorities. We believe that that is a worryingly high level. We have consistently made it clear that the clause 26 power would be used only if authorities were seen not to be remedying deficiencies in their reserves in accordance with the advice of their finance officers. 
 The evidence demonstrates that a power to set minimum reserves is necessary if authorities and the communities they serve are to be safeguarded from unreasonable financial risks with all the consequences of emergency in-year service cuts that may follow. Authorities should not get into the situation that arose in Hackney or Walsall where reserves were allowed to dwindle to a level where they were inadequate to cover overspending. In both cases the authorities found themselves having to make extremely difficult and damaging adjustments in order to remedy the defects of their budget—more so in Hackney, but Walsall nevertheless has had some very difficult decisions to take. 
 I pay tribute to the current political leadership in both of those areas, who are grappling with the problems and trying to resolve the inherited position. I suspect that they would have been greatly relieved if the powers that we are now putting in the Bill had been there in the past and had been used to prevent that difficult situation from arising in the first place. This year we have to make a grant of £25 million to keep Hackney council afloat, and £15 million of that is needed specifically to restore the council's reserves. That is an indication of the scale of the problem that can arise in an extreme case. That is why we believe there is need for these fall-back measures. 
 The hon. Member for Isle of Wight made some useful points about the need for extra freedoms for high performing authorities. That is very much part of our agenda. Those councils that are rated as excellent will receive a three-year period without further inspection, together with freedom from ring-fencing and the requirement to produce only one plan, as well as participation in the innovations forum that will explore additional freedoms. There is a commitment to recognise and reward authorities that are doing well. Our intervention programme is focused only on those that are in difficulty. There is a differentiation between the performances of authorities. I am glad that the hon. Gentleman has not had the misfortune to experience life under one of those Conservative councils where he might not have encountered the 
 good management that he has seen in some areas with which he has been associated. The case for the clause is strong. The amendments are not helpful and would compromise the current relationship between the auditor and the local authority. I hope the hon. Gentleman will withdraw his amendment.

John Pugh: As things stand I will have to withdraw the amendment, but I should like to comment on what the Minister has said. I said some time ago that I thought that this was the Local Government (Hackney) Bill. It is. We are in danger of formulating bad rules for local government in much the same way as we are trying to eradicate bad rules for local government that were made in response to the regime of Derek Hatton in Liverpool. Hard cases make very bad law. I do not think that a case has been made for imposing a regime on local government that is different from that for central Government.
 The Minister has deliberately underplayed the current scope for intervention and the current protections. The ultimate protection is publicity: when a council performs badly the electorate will become aware of that. The councillors will be voted out and people who aspire to do better will be voted in. The hon. Member for Oldham, East and Saddleworth (Mr. Woolas) is not in his place at the moment. His local party members are currently running around Oldham with a lot of details about the performance of Oldham councillors and their incompetence, in every expectation that they will be replaced in May—that is not my expectation, though it is probably his—by what the party members would consider to be a more competent authority, but which we know will not be. 
 To respond to the hon. Member for Isle of Wight as much as to anybody else, the key point is that there is a way of discriminating between good and bad local authority regimes, and it is called active local democracy. If people in Hackney cannot be removed by a better establishment, that says something about the political party's activities and the competence of the Opposition parties in Hackney. If there is good opposition and good electoral accountability, there is no need for that kind of regime. 
 I want to pick up a remark by the hon. Member for South Derbyshire, which I did not think to make myself, but which I thought was acute and perceptive. There is a serious chance that in future tensions will not be between parties on a council but between parties and the officers. On authorities such as mine, which have been balanced for some time—one might say hung—that tension is already manifest. The local authority is identified as having an officer party in addition to all its other political parties, and the Bill gives that officer party an extra weapon in its struggle. 
 I have the same reservations about the Audit Commission, which has moved over a decade or so from being accountants—bean counters or whatever we call them—to people who seem to have the right to make a range of discrete value judgments that are not always adequately evidenced by the financial information. The only thing that consoles me is that the Minister has said that he will use the provision sparingly and in extremis. That is better than using it 
 frequently, but it would be better still if it were not there at all. 
 I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Derek Conway: Usually after two and a half hours I would suspend the Committee for a short break, particularly for the benefit of those who serve the Committee and cannot go in and out as hon. Members can. However, I think that the usual channels would like to go a little beyond 5 o'clock tonight, although not to an excessive length, given the weather.

Geoffrey Clifton-Brown: I beg to move amendment No. 106, in
clause 26, page 11, line 18, leave out from 'determined' to end of line 19 and insert 
 'by reference to such code or codes of practice as the appropriate person shall, by regulations, specify.'.

Derek Conway: With this it will be convenient to discuss amendment No. 107, in
clause 27, page 11, line 41, leave out 'regulations under'.

Geoffrey Clifton-Brown: These are straightforward amendments, both of which deal with the amount of regulations introduced by the Bill. I have a philosophical dislike of regulations. If we are not careful, we shall drown in a sea of regulations introduced by the Bill. The corollary of introducing more and more regulations is that they receive less and less scrutiny. Therefore, de facto we are giving more and more power to the Secretary of State.
 Amendment No. 106 would delete subsection (3). We see no reason why regulations need to be made here. Amendment No. 107 would simplify the drafting of clause 27(3), to which I would have added the words ''and if that reserve is not adequate, regulations will be made''. Why there have to be two subsections, each with regulations, I cannot imagine.

Nick Raynsford: I appreciate that the aim of the amendments may be benign, substituting a code of practice for regulations, because, as the hon. Gentleman says, he has a pathological hatred of regulations. I shall not explore what may lie behind that. We believe that everything is appropriate for a particular purpose. Regulations have their place; they are not the panacea. We see other mechanisms being appropriate in different circumstances. However, I hope that when I have explained why it would be wrong to substitute for regulations the proposed code of practice, the hon. Gentleman will withdraw the amendment. I understand his wish to have an organisation such as CIPFA prepare the code. We all agree that CIPFA does an extremely important job. It is widely respected and we value its judgment.
 One aspect of the reason for opposing the amendments is technical. It would not be appropriate to require an authority to follow a code as if it were firm law. Codes are usually in the form of guidance. The furthest that we would expect to go in legislation would be to require an authority to have regard to a code. Clause 25 provides for authorities to have regard to the guidance of their chief finance 
 officer, so it would not be appropriate to require them to have regard to another code. I hope that the hon. Gentleman recognises that. 
 Equally, if the desire is to involve CIPFA in the production of a code, I very much doubt that it would be willing to be involved if compliance with the code were mandatory. CIPFA made it clear in its 1995 guidance on reserves, and in the recent draft update, that it is not prepared to specify minima. In its view, it should be for the chief finance officer to recommend an appropriate level in the light of the specific circumstances of the authority. We agree with that view, as we made clear in the White Paper. 
 The power in clause 26 will be used only if the process fails. It is a default power where an authority has failed to have regard to the advice of its chief finance officer and it runs its reserve down in a dangerous way, as in the extreme cases that I have described. We are guarding against those circumstances. They are very unusual, so I sincerely hope that we will never have to use the powers, but they are a necessary safeguard and stopgap. 
 On the basis of that explanation, I hope that the hon. Gentleman recognises that his alternative, although well intentioned, is not an appropriate solution. I hope that he will withdraw the amendment.

Geoffrey Clifton-Brown: The Minister has not explained, under amendment No. 107, why clause 27(3) could not have been more simply drafted, but I accept his reasonable explanation on amendment No. 106. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 26 ordered to stand part of the Bill. 
 Clauses 27 to 29 ordered to stand part of the Bill.

Clause 30 - Authorisation of agreements during the prohibition period

Question proposed, That the clause stand part of the Bill.

Geoffrey Clifton-Brown: You may have thought that you were on a roll, Mr. Conway, but all rolls have to stop somewhere. We have not tabled amendments to clause 30, but it would be wrong to let it pass without a debate, because it is the nuclear option. The clause gives chief finance officers considerable powers. As the explanatory notes to the Bill suggest, section 114(3) of the Local Government Finance Act 1988 states:
''The chief finance officer of a relevant authority shall make a report''.
 Subsection (6) deals with what should happen 
''If the chief finance officer is unable to act owing to absence or illness''.
 There are some pretty draconian duties under that section. Section 115 relates to where such a report is to be considered by the full council within 21 days of its issue. During the period from the report's issue until the day after the council meeting, the authority is prohibited from entering into any new agreement that may involve expenditure by the authority. 
 We are talking about pretty severe circumstances, but perhaps not quite as severe as the situation in Walsall, which has required special measures. By the time such powers were needed, the council would already be running into some difficult financial circumstances. 
 It would be interesting to know what is wrong with the existing legislation—is it that chief finance officers have draconian powers? I have asked that question on so many occasions, but I have never received a proper answer. Perhaps the Minister will explain that in a moment. What is wrong with those draconian powers that already exist that we are seeking to supplement them through the clause? Perhaps the Minister will answer that question at some length in relation to this important clause.

Nick Raynsford: I am happy to do that. The clause stands apart from the other clauses in part 2 and it might help if I sketched in a bit of background to aid the Committee's understanding. The other clauses in part 2 aim to ensure that authorities maintain sound finances. We are dealing with a problem that, as the hon. Gentleman said, is already serious.
 Sections 114 and 114A of the 1988 Act already contain significant powers that allow chief finance officers to report to their authorities in certain circumstances. We are concerned with the reports under section 114(3), which must be made when, in the chief finance officer's view, the authority will not have sufficient resources to finance its expenditure for the year in question. That is not just a matter of budget deterioration; it pertains to a complete exhaustion of all available resources, including reserves. Once the chief finance officer has issued a section 114(3) report, section 115 requires the full council to meet within 21 days to consider the report. However, from the issue of the report until the day after the council meeting, the council is prohibited from entering into any new agreements involving expenditure. 
 We have already discussed the point that too much of the legislation may be based on the experience of the London borough of Hackney. Our working with Hackney has been a useful experience, not least because we have discovered a slight deficiency in the section 114 power. That power was used by Hackney because of its serious situation and an unintended consequence of that led us to bring forward the amendment. In the period after the section 114 notice had been served, and before the council could meet, the recovery team tried to put together a grouping of new finance officers and advisers to tackle the serious budget problem, but it was stymied because it could not make any appointments. It was debarred from any expenditure, even though the small sum involved was critical in getting an expert finance team in place to begin to turn around the authority's finances. 
 We recognise that although there could be circumstances in which the objective of section 114 powers as they are defined in the 1988 Act were right, a modest amendment would help to ensure that they would not have a perverse and negative consequence. The purpose of the provisions in the clause is to amend 
 section 115, so that there can be a little bit of flexibility where expenditure is necessary to help the recovery. I hope that the hon. Gentleman will recognise that, in the light of experience, this is a necessary and sensible addition to an existing power, and I hope that the Committee will agree that the clause should stand part of the Bill.

Geoffrey Clifton-Brown: Again, the Minister has, in a reasonable manner, analysed a problem that I had already outlined and he has, also very reasonably, described what the clause would do to remedy the problem. If a section 114 notice is served, it is nonsense if those who are trying to remedy the situation have no budget with which to appoint new people or take whatever steps are necessary, whether that applies to the reletting of contracts or other matters. There must be a default power and the clause makes sense in terms of the nuclear option—the situation would be pretty bad if it had to be used. On that basis, Mr. Conway, I shall not seek to persuade my colleagues to vote to remove the clause, even though the power that it gives is pretty draconian.
 Question put and agreed to. 
 Clause 30 ordered to stand part of the Bill.

Clause 31 - Power to pay grant

Edward Davey: I beg to move amendment No. 83, in
clause 31, page 14, line 7, at end insert 
 'but only after Parliament has agreed an instrument laid by the Minister relating to that grant.'.

Derek Conway: With this it will be convenient to discuss the following amendments:
 No. 84, in 
clause 31, page 14, line 17, at end add 
 'but only after Parliament has approved any instrument pursuant to subsection (1) relating to any grant.'.
 No. 109, in 
clause 31, page 14, line 17, at end add— 
 '(6) Any grant paid under this section shall be reported to Parliament as a special grant report pursuant to section 88B of the Local Government Finance Act 1988 within not more than five months of such grant being made.'.
 No. 120, in 
clause 36, page 16, line 18, leave out subparagraph (c).
 No. 110, in 
clause 36, page 16, line 18, at end insert— 
 '(6A) Any determination made under this section shall be reported to Parliament as a special grant report pursuant to section 88B at the Local Government Finance Act 1988 within not more than five months of the date of such determination.'.
 No. 121, in 
clause 37, page 17, line 7, leave out subparagraph (c).
 No. 111, in 
clause 38, page 17, line 29, at end add— 
 '(4) Any grant paid under this section shall be reported to Parliament as a special grant report pursuant to section 88B at the Local Government Finance Act 1988 within not more than five months of such grant being made.'.

Edward Davey: The Government are giving themselves total flexibility under this clause to pay grants to local
 authorities at the Minister's whim. There will be no parliamentary scrutiny whatever, except, as the Minister said on Second Reading when I raised this point, on the scrutiny of the estimates. I shall come to that in a moment. All sides should be concerned about this extra grant-making power that the Government are taking.
 Hon. Members may say that the Government pay out huge amounts of grants that are never properly scrutinised. They would probably be right to say that, but that is no reason to give the Government more powers. Clause 31 would allow the Minister to pay a grant at any time, to any authority, for any purpose, without there being any objective criteria by which elected Members in this place, or in local authorities that are not getting those grants, can see why that grant has been given. 
 The Government can pick and choose the authorities to which they want to give grants. That already happens to a certain extent, but at least there is some scrutiny of that power. I am rather worried that the Government will use the extra power that the clause gives for purposes about which people at the audit stage may be extremely concerned. We tabled amendments Nos. 83 and 84 so that Parliament could scrutinise the grants made. 
 The Minister said on Second Reading that the estimates procedure is available to scrutinise grants. I was surprised at that because he should know that that procedure has fallen into disrepute. Various Procedure Committee reports of the past 15 years have described as a constitutional myth the idea that the House really wants the Executive to account for spending. The estimates are debated only on the three days allowed for under Standing Orders, and we do not even debate them on those three days—we debate Select Committee reports that are attached to the estimates. When I have asked questions about the estimates during those debates, Ministers often could not answer because they had not been briefed on those matters. They had come to the House not expecting to be questioned on the estimates. The House has effectively given up the scrutiny of expenditure. We would go another step forward in that direction if we accept clause 31. 
 I shall not labour that point because of the time. However, to assure hon. Members that I could if I so chose, I refer them to a document that I have written called ''Making MPs Work for our money: reforming Parliament's scrutiny of the Budget'', which costs £10. Alternatively, hon. Members can download it free of charge from my website, www.edwarddavey.co.uk.

Derek Conway: I am not sure whether hon. Members can promote their books; otherwise Edwina Currie might never have sat down.

Edward Davey: You are tempting me, Mr. Conway. For the comfort of hon. Members on the Conservative Benches, I shall not go down that road.
 I made the point in the pamphlet, and the Leader of the House of Commons has complimented me on some of the analysis in it—I sent him a copy, which he 
 claims to have read—that when one compares the supply process in the House with almost all other Parliaments in the western world, especially those in the OECD, ours is an absolute disgrace. We do not analyse the Government's budget and spending proposals in any way. The last time that the House rejected an expenditure request from the Executive was in 1919, and that was a request for money for a second bathroom for the then Lord Chancellor. 
 I told the Committee that I could wax lyrical on the issue. I feel passionately about it. That is why I cannot understand why we should want to give the Executive even more powers, over and above the huge powers that they already have. People are elected to this place to hold the Government to account for the way they spend taxpayers' money, and we have given up on that task. Frankly, the history of the matter shows that we never really bothered to take on that task in any meaningful way. I hope that the Minister will show us why we should trust him with extra powers that will mean that there will not be scrutiny of grants made to local authorities.

Geoffrey Clifton-Brown: On this occasion I wholly support the hon. Member for Kingston and Surbiton.

Phil Woolas: The hon. Gentleman has read the book.

Geoffrey Clifton-Brown: I have not read the book. I do not think that it will form part of my bedtime reading, although he might convince me otherwise.
 Our amendments in a sense complement the hon. Gentleman's amendments and relate to what he has to say. We do not particularly like the specific grant regime, but it did at least have an element of democratic scrutiny about it. The regime that we are discussing is completely arbitrary, as the hon. Gentleman says. Clause 31(1) states, in italics: 
''A Minister of the Crown''—
 so that is any Minister in any Department— 
''may pay a grant to a local authority towards expenditure incurred or to be incurred by it.''
 That seems to me to authorise any Minister of the Crown to pay a grant for any purpose that he or she might on a whim consider—to buy, as the hon. Gentleman says, a Christmas party. The problem concerns how the power is to come under democratic scrutiny, or the normal scrutiny of the Audit Commission or the Public Accounts Committee, of which I have been a member. The Minister needs to be able to deal with that point. 
 In the existing system of special grants, under section 88B(1) of the Local Government Finance Act 1988, which is referred to in some of our amendments, the 
''Secretary of State may, with the consent of the Treasury,''
 pay a grant. Although the explanatory notes state that the Treasury must give consent, I can see nothing in the clause to that effect, so where will the money come from? Will it come from each departmental budget? If so, to what extent will we be able to learn from the Minister what must be deleted from his departmental budget? How much has the Minister allowed in the next three years for the relevant grants? Is he aware of 
 other Departments that are likely to make grants under the clause? The provision is pretty vague, as can be seen already from the questions that I am asking. 
 Clause 88B of the Local Government Finance Act 1998—which outlines the existing regime—states that the Secretary of State 
''may, with the consent of the Treasury, pay a grant''
 and provides that he should state 
''to which authority it is to be paid . . . the purpose for which it is to be paid, and . . . the amount of the grant''.
 There are safeguards. In addition to the requirement for the consent of the Treasury, the provision requires: 
''A special grant report shall be laid before the House of Commons''.
 It also states: 
''No special grant shall be paid unless the special grant report containing the determination relating to the grant has been approved by a resolution of the House of Commons'',
 and 
''A special grant report may specify conditions''.
 Those conditions may 
''require the provision of returns''
 or 
''relate to the use of the amount paid''.
 It is incumbent on the Minister, in introducing so wide a power in the Bill, to explain to the Committee exactly what he has in mind. 
 I am worried, also, that the clause is very arbitrary. We have already seen the Government gerrymandering local government finances towards authorities that are likely to be of their political persuasion. They do that by resource equalisation, pooling council receipts, subsidising an authority rental account that is in deficit with another that is in surplus and by rent rebate subsidy limitations. There are a number of subtle ways in which the Government shift money about from one group of authorities to another. 
 It may be my Machiavellian mind and hon. Members may not like it—[Interruption.] Whenever I start to get on to something contentious, the volume of noise opposite increases. The more the volume of noise increases, the more I know that I am on to the right thing. I have a suspicious mind and I worry about the fact that it is completely at the whim of any Minister to pay a grant to any local authority for anything that he wants. I bet that more grants go to Labour councils than Conservative councils and I defy the Minister to deny that.

Paul Goodman: To buttress my hon. Friend's point, under subsection (2) it is not merely the amount of the grant that may be determined by the Minister, but the manner of payment.

Geoffrey Clifton-Brown: My hon. Friend is right. The more one reads the clause, which has five far-reaching subsections, the more one realises how arbitrary it is. It would be difficult for the Conservatives to make a case to vote the clause out, but I am gravely suspicious
 about it and I await the Minister's explanation with interest.

Nick Raynsford: Well, we really do have a storm in a teacup here. The powers are designed to cope with the deficiencies and weaknesses in the existing grant-making regime, which has been particularly irksome to local government. Local authorities have warmly welcomed the changes; indeed, they asked for the changes to remove some of the problems that very clearly exist at present. I understand the Opposition's wish to find a stick with which to beat the Government—after all, that is their role—but, in this case, had they sought advice from local government before tabling the amendments and making their speeches, they might have come to a different conclusion.
 The new grant-making power in the clause is intended to address deficiencies in the current powers relating to special grants and to make it easier to pay grants to local authorities without artificially restricting their use. Amendments Nos. 83 and 84 would require the grant to be made in an instrument that would be subject to parliamentary approval.

David Curry: How can the Minister artificially restrict a use? He either restricts a use or he does not.

Nick Raynsford: If the right hon. Gentleman will bear with me, I will explain precisely. Unfortunately, it does happen.
 Amendment No. 109 would require the grant to be reported as a special grant report under section 88B of the Local Government Finance Act 1988. That would mean that a grant made under the new power could be struck down after it had been paid if Parliament subsequently decided not to approve it. Most people will understand that it would be unsatisfactory for a local authority to receive a grant and then be told that it was going to be withdrawn because a Committee had retrospectively voted it down. I hope that Members will recognise that that would be inherently unsatisfactory. 
 The existing special grant procedures are cumbersome and inflexible. Grants can be made only at certain times and there is often a long delay before an appropriate slot becomes available, which can make it difficult to pay sums to local government at the time when they are needed. That encourages Departments—not necessarily the Office of the Deputy Prime Minister—to use other grant-making powers, which are, by definition, ring-fenced. That is the artificial restriction to which I referred earlier and which was picked up by the right hon. Member for Skipton and Ripon. If there is a perverse incentive to use a ring-fenced grant mechanism because the general grant mechanism is cumbersome and difficult to use, curiously, that will impose additional, arbitrary restrictions on local government. From what I gathered from debates in Committee, that was not the objective of the Opposition. I hope that they will think a little bit more about the consequences of their proposals, even though they are motivated by a suspicion of our motives.

Geoffrey Clifton-Brown: Could this be a mechanism for the Government to dig themselves out of a hole in
 certain circumstances? Could it be a mechanism to help those 19 authorities that, because of the local government finance settlement, cannot achieve the settlement that the Department for Education and Skills achieved? The Department for Education would have to make a special grant to make up the shortfall.

Nick Raynsford: No, I am afraid that the hon. Gentleman has got the wrong end of the stick. The circumstances that he describes, which we will no doubt discuss when we come to the local government finance settlement, relate to differences between the expectation of the Department for Education and Skills about the passporting on of education allocations to schools and councils' ability to manage that within the corporate constraints of meeting the needs of other services. As I have told many hon. Members who raised the matter with me, my colleagues in the Department for Education and Skills have made it clear that they will look sympathetically at representations from authorities that are having difficulties. There is no connection whatever; we have no intention of using those powers for that purpose.
 I put it to the hon. Gentleman that all those authorities are receiving above-inflation increases, not a common experience when his party was in government. 
Mr. Curry rose—

Nick Raynsford: I am delighted to give way to the right hon. Gentleman, who has experience of that.

David Curry: From time to time, the Government pay grants under the Bellwin scheme of emergency financial assistance to local authorities to cover disasters such as flooding or rail crashes. The Bellwin scheme is very complicated. How much a local authority gets under Bellwin depends largely on how many teachers it employs because it is related to its budget of the local authority. Will the Minister give us an exemplification of how clause 31 will help North Yorkshire for example, which has suffered from floods and rail crashes, as opposed to the existing mechanism?

Nick Raynsford: The obvious example is that in the event of a major disaster that needed Bellwin assistance, the Government could use the powers proposed in clause 31 to make an initial payment to give the authority some money to take immediate action to remedy its problems while it waited for the residue to come through after the detailed grant has gone through its cumbersome processes. This is a classic illustration of how these more flexible powers will enable a quicker response to immediate needs than is possible under existing arrangements.
 Clause 31, which deals with expenditure grants, will allow Government Departments and the National Assembly for Wales to pay grants without imposing undue restrictions on authorities in achieving desired outcomes and so ensure that we keep ring-fencing to a minimum. The Local Government Association has given strong support to the new power on that account; it said in its brief to MPs, which clearly has 
 not been read well, that it welcomed the proposals to simplify and extend the statutory basis of grant payments to local authorities. That is particularly welcome in cases in which the new power would provide greater flexibility for councils in the use of the grants. 
 Clauses 36, which deals with the best value grant, and clause 38, which deals with the grants in connection with service excellence—the beacon councils—provide a great deal of additional flexibility. It is not a question of removing local government finance from proper scrutiny. In England, parliamentary approval will still be needed to the ambit of each Department's request for resources, and parliamentary approval will still be sought for the local government finance settlement each year, which provides most funding to local government. There will be a proper opportunity to scrutinise how the Government have used those powers. 
Mr. Clifton-Brown rose—

Nick Raynsford: I will give way to the hon. Gentleman in a moment, but I wish to respond to the valid point that was raised by the hon. Member for Kingston and Surbiton that there may be an argument for changing the arrangements in the House for scrutinising its estimates and expenditure. However, that should not prevent our putting in place a desirable and more flexible framework that would enable us to give appropriate help to local government on a much less restrictive basis than is presently the case.
 I have no reason to question the eminently sensible suggestions that the hon. Member for Kingston and Surbiton no doubt wishes to flog to us at £10 a time or offer freely via his website, but his speech was entertaining. He has shown his generosity by giving my hon. Friend the Under-Secretary a copy of the proposals. We shall study it carefully, but there is no reason to oppose the provision.

Geoffrey Clifton-Brown: The Minister has slightly moved on since I asked him to give way on the matter of scrutiny. The Minister and I have been around this course many times. He knows that scrutiny of estimates rarely takes place in the House and, when it does, the Budget estimates of an entire Department are covered in what is usually a three-hour debate. There is hardly time to scrutinise a specific section.
 Would the Minister answer some questions before he concludes on the matter? The explanatory notes say that the Treasury must give its consent, but the clause does not. Can he clarify that discrepancy? Can he say how much money his Department has set aside for expenditure under the clause in the next three years? Is he aware of any other Department that has set aside money for the purpose? Can he say where the crossover point is between examination of local government matters, which are covered by the Audit Commission, and of other departmental matters, which are covered by the Public Accounts Committee? Which scrutiny body will have powers to scrutinise the grants? Presumably, that will vary depending on their source.

Nick Raynsford: The hon. Gentleman has not been as assiduous as I would have expected. Subsection (5) states:
''In the case of a grant to a local authority in England, the powers under this section are exercisable with the consent of the Treasury.''
 I hope that that answers that question. 
 On the roles of the Audit Commission and the National Audit Office, the Audit Commission's remit is local government. It would be involved, through the district auditor, in scrutinising the use of funds by local authorities but not in the process of the grant, which is a central Government matter. The grant would be subject to scrutiny by the NAO, if the Comptroller and Auditor General felt that it was appropriate. 
 The hon. Gentleman says that the provision is part of some secret wish of the Government to shift funds in favour of one particular type of authority. Nothing could be farther from the truth. It is in the interest of local government and enables us to make grants, if appropriate, to authorities on a more flexible basis than can be done at present. The precise proportion of money that will go to any particular political party will depend entirely on the qualifying authorities and who controls them—that is a changing pattern. I hope that I can allay his fears on that count by saying that there is absolutely no plan to use the clause in the nefarious way that he suggests. We wish to help local government in a more flexible way, and I hope that the Committee will agree with that.

Edward Davey: I wish to make three points in response to the Minister's comments. First, he said that local governments welcome the measure. Of course, they do—it will mean more money for them—but that does not mean that we should disregard our duties in this place to scrutinise the way in which the Government spend taxpayers' money. His argument is not valid.
 We have duties in this place to the taxpayer, and the Minister should recognise that.
 Secondly, he says that the measure will reduce ring-fencing. Subsection (3) states: 
''A grant under this section may be paid on such conditions as the Minister of the Crown concerned may determine.''
 That is the ultimate in ring-fencing. It will give the Minister the power to ring-fence every grant for any purpose. When we discuss clause 32, we will see that that is very much case. 
 Thirdly, the Minister says that the measure will create great flexibility. The House would probably be prepared to give the Government flexibility in emergency cases, in which grants must be paid urgently. We could have a very clear clause.

Nick Raynsford: They cannot.

Edward Davey: The Minister says that they cannot. If he were to rephrase the clause so that they could, perhaps the Committee would be happier with it. It is possible to do that, and I am surprised that the Minister, who is a very intelligent man, and his officials cannot come up with a way of doing that.
 I make a final point. The Minister says that he is sympathetic with my proposals for reforming the estimates systems. He has not yet read them, but I am glad that he has such confidence in them and gives me such fulsome support. It is vital that we carry out reform and, until we do, I will not understand why this place should give even more powers to the Executive. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 31 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Mr. Woolas.] 
 Adjourned accordingly at half-past Five o'clock till Tuesday 4 February at five minutes to Nine o'clock.